FSI 3023 - Fintech and Financial Services (Cont'd) PDF

FSI 3023 - Cryptocurrencies and Artificial Intelligence in AML Financial Services – Investigation and Compliance (FSIT) Recap 2 Fintech Video: What is Fintech Fintech Banking Growth of Fintech Reading Material: Technology-led innovation in banking Evaluation Schedule Tests 40% 2 tests (equally weigh...

FSI 3023 - Cryptocurrencies and Artificial Intelligence in AML Financial Services – Investigation and Compliance (FSIT) Recap 2 Fintech Video: What is Fintech Fintech Banking Growth of Fintech Reading Material: Technology-led innovation in banking Evaluation Schedule Tests 40% 2 tests (equally weighted for 20% each) (Week 7 and Week 15) Group assignment 25% 1 group assignment (weighted as 25%) (Due in Week 10 and Week 11) Individual assignment - 30% 2 individual projects equally (weighted as 15%) (Due in Week 5 and Week 14) ACFCS Professional Development (weighted as 5%) (Due week 13 and Week 14) 3 Agenda 4 Fintech use cases Fintech and traditional banks Recommendations for regulators and policymakers Advantages of Fintech Disadvantages of Fintech Class Discussion: Technology-led innovation in banking 5 Fintech use cases 6 Online payment gateway / mobile payment app An online payment gateway is a technology that enables secure and seamless online transactions between customers and businesses. It serves as an intermediary between the customer's payment method (such as credit cards, debit cards, or digital wallets) and the merchant's website or application. 7 Crypto exchange payments platform Crypto exchanges also need a secure and scalable way to process payments and help their customers maximize trading opportunities. Integrating with a crypto exchange payments platform can help crypto businesses process large volumes of fiat payments for cryptocurrency purchases. This type of payments platform also helps crypto exchanges improve the user experience by accepting deposits of funds from a wide range of customer-preferred local fiat payment methods. 8 Article: Top 10 emerging tech markets 9 Fintech and traditional banks 10 Fintech + traditional banks Fintech companies can offer products and services that are up to 10 times less expensive than traditional banks. A traditional bank needs real estate and thousands of employees while many fintech companies need very little real estate and a smaller team. The savings are then passed on to consumers. Fintech leverages new technologies like artificial intelligence, big data, and cloud computing to give customers a unique experience as compared to traditional banks. Using technology also leads to fewer mistakes, higher quality service, and faster service in a shorter amount of time 11 Article: Canadian roots 12 Recommendations for regulators and policymakers 13 Intro The Competition Bureau (Bureau) ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. Bureau developed 11 broad recommendations for financial sector regulatory authorities and policymakers to ensure future regulatory change creates space for innovation in this important sector of the Canadian economy. 14 Scope and premise of this study The Bureau decided to study Canada’s financial services sector for three primary reasons. First, during the Bureau’s public consultations in 2013, financial services were identified as an area of focus for potential advocacy initiatives. Second, the sector itself is an important pillar in the Canadian economy. Financial services contribute approximately 7% to Canada’s gross domestic product (as of May 2017) and financial services account for nearly 800,000 Canadian jobs (2015 figures). Third, financial services play a significant role in the day-to-day life of most Canadians, whether they are receiving or making payments, borrowing, spending, saving or investing. 15 Recommendations Based on the findings of this market study, the Bureau developed 11 broad recommendations for financial sector regulatory authorities and policymakers to ensure future regulatory change creates space for innovation in this important sector of the Canadian economy 16 Regulation should be technology-neutral and device-agnostic. Rules that can accommodate and encourage new and yet-to-be developed technologies open the door to more innovative offers today and down the road. 17 To the extent possible, regulation should be principles-based. Instead of prescribing exactly how a service must be carried out, a principles-based approach will allow regulators to be more flexible in their approach to enforcement as technology changes. 18 Regulation should be based on the function an entity carries out This will ensure that all entities that perform the same function carry the same regulatory burden and consumers have the same protections when dealing with competing service providers. 19 Regulation should be proportional to risk. This requires a tiered approach: functions whose failure poses lower risks to the financial system should not necessarily face the same strict oversight as those whose failure poses higher risks. This will give smaller players a level playing field to innovate. 20 Regulators should continue their efforts to harmonize regulation across geographic boundaries. Differences in regulations across provinces can lead to increased compliance burden. Consistency, on the other hand, can facilitate entry and expansion of FinTech across Canada and abroad. 21 Policymakers should encourage collaboration throughout the sector. Mechanisms for doing so include the use of regulatory sandboxes and innovation hubs. Greater collaboration will enable a clear and unified approach to risk, innovation and competition. 22 Policymakers should identify a FinTech policy lead for Canada to facilitate FinTech development. This would give FinTech firms a one-stop resource for information and encourage greater investment in innovative businesses. 23 Regulators should promote greater access to core infrastructure and services This includes access to the payments system (under the appropriate risk-management framework) and banking services to facilitate the development of innovative new FinTech services. 24 Policymakers should embrace broader "open" access to systems and data through application programming interfaces With better access to consumer data (obtained through informed consent), FinTech can help Canadians overcome their inability or unwillingness to shop around and switch between service providers. This Photo by Unknown Author is licensed under CC BY-NC 25 Industry participants and regulators should explore the potential of digital identification verification. This would reduce customer-acquisition costs for service providers, ultimately reducing the costs of switching for consumers and facilitating regulatory compliance where identity verification is needed. 26 Policymakers should continue to review their regulatory frameworks frequently Doing so will ensure that these frameworks remain relevant in the context of future innovation and can achieve their objectives in a way that does not unnecessarily inhibit competition. This Photo by Unknown Author is licensed under CC BY 27 Reading material: Top 10 fastest-growing tech companies in Canada 28 Advantages of Fintech 29 Increased Accessibility Fintech has improved access to financial services for individuals and businesses, especially those in underserved or remote areas, allowing them to participate in the global economy. 30 Convenience Fintech solutions offer convenient access to financial services through digital platforms, mobile apps, and online interfaces, making transactions and management of finances more efficient and userfriendly. 31 Cost-Effective Fintech companies often operate with lower overhead costs compared to traditional financial institutions, leading to cost savings for customers through lower fees and competitive rates. 32 Innovation Fintech fosters continuous innovation in the financial sector, leading to the development of new products, services, and technologies that improve the overall financial landscape. 33 Financial Inclusion Fintech has the potential to bring previously excluded populations into the formal financial system, providing opportunities for economic growth and reducing poverty and inequality. 34 Personalization Fintech leverages data analytics and artificial intelligence to offer personalized financial advice and services tailored to individual needs and preferences. 35 Enhanced Security Many fintech companies invest heavily in cybersecurity measures to protect customer data and financial transactions, enhancing overall security compared to traditional paper-based processes. 36 Disadvantages of Fintech 37 Security Risks While fintech companies prioritize security, they are also susceptible to cyberattacks and data breaches, potentially leading to financial losses and compromised personal information. 38 Regulatory Challenges The fast-paced and innovative nature of fintech can sometimes outpace existing regulations, leading to legal uncertainties and potential regulatory gaps. 39 Lack of Human Interaction Some people may prefer face-to-face interactions with human financial advisors, which can be lacking in purely digital fintech services. 40 Inclusiveness but Limited Access for Some: Despite increasing financial inclusion, certain segments of the population, particularly older individuals or those with limited technological access or knowledge, may still face barriers to adopting fintech services. 41 Overreliance on Technology Technical failures, glitches, or system outages can disrupt fintech services, potentially causing inconvenience and financial losses for users. 42 Data Privacy Concerns The extensive use of data in fintech services raises privacy concerns, as customer information may be shared with third parties or used for targeted marketing purposes without clear consent. 43 Risk of Disruption Traditional financial institutions may face challenges from disruptive fintech startups, leading to potential job losses and changes in the financial sector's overall stability. 44 Recap Fiat currency Key features of traditional currencies Digital Payments Key characteristics of digital payments Types of digital payments Cryptocurrency Key characteristics of cryptocurrencies A simple cryptocurrency transaction 45 Q&A 46 Q&A 47