Andreas Park PRO
Professor of Finance at UofT
FinTech
in Canada
Andreas Park
in a nutshell: why people choose to work in finance
relative wage=avg wage in finance/avg rest of economy
Source: Philippon (AER 2015) "Has the U.S. Finance Industry Become Less Efficient?"
The Growth of Finance as % of GDP
Source: Philippon (AER 2015) "Has the U.S. Finance Industry Become Less Efficient?"
... and unit costs are flat!
Source: Philippon (AER 2015) "Has the U.S. Finance Industry Become Less Efficient?"
Main Structural Change
Main Structural Change
Moore's Law: the future
And then there's this:
which led to ...
What is FinTech?
Key features
- focus on positive customer experience
- Willingness to apply technology in novel ways.
Approach: Propositions that are
- simpler, seamless
- more convenient,
- more transparent and
- more readily personalized.
based on EY 2017 FinTech report
Consequence of FinTech
Impact on incumbents: struggle to deliver the seamless and personalized user experience.
Consequence: ripple effect
-
consumers expect convenience for all financial products and from all service providers
- retail banking,
- wealth management or
- insurance.
based on EY 2017 FinTech report
Problem for incumbents
- FIs focus on their needs and wants
- => are not customer-centric
You haven't heard much about it?
Source: EY FinTech Adoption Index 2017
18%
Three types of FinTechs
- Those that start outside of FIs and would like to collaborate with FIs.
- Those that started outside of FIs and now collaborate FIs.
4. Big Tech Firms
3. Those that work to replace or change the financial system as we know it.
Some Core Functions of Financial Institutions/Banks affected by FinTechs
Lending and Borrowing
Wealth Management
Payments
Investment Banking Services
Lending and Borrowing
price for loan
effort required to get loan
Example: Upstart
Source: upstart.com
Tools? Machine Learning
Source: Jagtiani & Lemieux, 2017, Philly Fed Working Paper 17-17
Future: Scalability
Source: Jagtiani & Lemieux, 2017, Philly Fed Working Paper 17-17
Payments
5% to cab firm and 10-day delay
International remittances: $600B (U.S.) p.a.
all in: 10% fees
Payments
500M users in India
free international transfers at Interbank rates
used by >60% of total population in Denmark
WealthTech
- available invest products
- fee transparency
- regulatory changes
- mobile savvy users
main changes in recent years
New, low-cost Investment Products: Exchange Traded Funds (ETFs)
US data: https://www.seeitmarket.com/what-are-etf-and-mutual-fund-flows-trends-telling-investors-now-14449/
Help from financial advisors is useful for the average investor but ...
... all evidence points to severe conflict of interest
In addition: Regulatory Changes force structural changes in fund management
- ban on trailer fees
- for funds: separation of research fees and commissions
- best interest vs suitability
=> automation = Robo Advisors!
Examples of Canadian FinTechs
RegTech
Compliance
Security
Crowdfunding
Payments
Lending and Borrowing
Digital Wealth
Personal Finance
Platforms,
Accounting
Data and Analytics
InsurTech
Blockchain, DLT
Cryptocurrencies
Type 3: Those that want to "blow up the banks"*
*= disintermediate
everything
Stock transfers are complicated!
But with blockchain...
Step1: Design smart contract = limit order
Step 3: Send money
to smart contract
Step 4: BC confirms trade and changes accounts
Step 2: register on blockchain
...you can do this all in one go!
You can even create your own security ("token") in a snap!
Transformations
Summing up
- Major technological transformations
- driven by small firms
- forcing big banks to think -gulp- about CUSTOMERS!
- both disruptive and collaborative
- Canada still at the beginning, so much good still to come
- bigger changes are coming
- strong drive by big tech firms
- in 10 years, banks and jobs of bankers will be entirely different
- Blockchain wildcard
- if the decentralized internet takes a foothold, the digital world will look entirely different
- neither banks nor tech firms nor the public sector will be anything like they are today
For us: how will this all affect our research and teaching ...?
FinTech in Canada - RITC 2018
By Andreas Park
FinTech in Canada - RITC 2018
I used this deck for a presentation at Tom McCurdy's and RSM's 2018 RITC.
