W3: FINM4100 Fintech: Redefining Financial Services

W3: FINM4100
Fintech:
Redefining Financial Services
Exploring the opportunities and threats that come
with information digitisation, information
liberalisation and looking at technology as a
disruptive dynamic in the financial services industry.
FINM4100 Roadmap
Week 1
Introduction
Week 2
Analytics &
Accounting
Week 3
Fintech
Week 4
Regtech 1
Week 5
Regtech 2
Week 6
Presentation
Q&A
Week 7
Economic
Modeling
Week 8
Data Analytics
Workshop 1
Week 9
Data Analytics
Workshop 2
Week 10
Data Analytics
Workshop 3
Week 11
Data Analytics
Workshop 4
Week 12
Presentation
Q&A
Lesson Learning Outcomes

Recap of the previous week…
• The fundamentals of modern finance theory.
• Time Value of Money (TVM), opportunity costs and choices in the timing
of consumption.
• Asset Classes
– Ordinary and Preference Shares
– Bonds and Fixed Income Instruments
– Cash and Cash Equivalents
– Real Estate
– Commodities
• The importance of risk and diversification in portfolio construction.
The winds of change…
Vik Atal
Assistant Professor of Accounting
Wharton School of the University of Pennsylvania
“If you compare banks to
companies like Google, it’s
evident that banks are still at
the nascent stage of the digital
and data revolution.”
The Financial Services Sector
Financial Services
Banking
Capital Markets
Insurance
Advisory

Estate Planning
Ripe for disruption…
Fintech survey report (CFA Institute, 2016):
Identifies the types of financial services most vulnerable and most likely to be made
redundant by business process automation and robo-advice.
Industry participants were asked:
“Which sector do you think will be most affected by automated financial advice tools?”
54%
16%
12%
8%
7%
2%
Sectors Vulnerable to Fintech Disruption
Asset Management
Banking
Securities
Insurance
Other
None of the above
Trust in the industry…
…is at an all time low!
Moving toward a cashless world
The financial services industry is a key artery in the global economy.
• Banking | Financial advice | Superannuation | Insurance
CEMEA = Central Europe, Middle East and Africa
CAGR = Compound Annual Growth Rate

Big Data
Data collection, monitoring, analysing and reporting in the financial services domain is evolving
into an entirely new industry. This is primarily driven by developments in big data technologies
and the wider Fintech ecosystem.
What is Fintech?
Financial Services Technology
Fintech
The Evolution of Fintech
• Phase 1 – early calculation, accounting, communication and
transaction facilitation technologies
• Example – double entry accounting
• Phase 2 – computerisation of records and electronic banking
• Example – bank accounts and interbank clearing houses
• Phase 3 – automation of financial services, decentralisation
of distribution channels, portability of solutions and client
data, interoperability across systems
• Example – online home loans and insurances
Activity 1
Q1: Is Fintech a new concept? How has Fintech changed over time?
Q2: List and explain some of the drivers behind incorporating technology into
financial services and processes.
Q3: What is the Compound Annual Growth Rate and how is it used?
Q4: List and explain some of the drivers underpinning the rapid growth in
non-cash transactions
Q5: How is analytics being used to improve financial services? Provide
examples of big data applications in fintech.
The Royal Commission into
Banking and Financial Services
Established on 14 December 2017 by the Federal Government to examine
reports of misconduct in Australia’s financial services sector.
Instigated by media investigations into systemic governance issues, a
culture of prioritising short term profits and conflicts of interest running
rampant across the industry.
Regulators in charge of enforcement and monitoring compliance largely
turned a blind to to the dealings of big banks deemed ‘too big to fail’.
Final report made 24 recommendations relating dishonesty and
misconduct and charged the regulators with the responsibility for taking
action.
The Royal Commission into
Banking and Financial Services
The Commissioner continues to identify conflicts of interest as a
systemic issue in the provision of financial services.
Key recommendation: break up vertically integrated monoliths.
…A historic opportunity for fintech to fill service gaps!
Big Bank Ltd
Post RC Competitive Landscape
Big Bank Ltd
• Home loans
• Insurance
• Wills & Estate
• Home loans
• Super
• Investments
• Wrap Platform
• Theme-based
investments
• Digital banking
Thanks for the confirmation.
Activity 2
Q1: What is the Royal Commission into Banking and Financial Services and
why was it called?
Q2: How would a ‘focus on short term profitability’ and ‘conflicts of interest’
affect a service provider’s ability to look after their clientele’s best interests?
Reinforce your discussion with examples.
Q3: Why is the outcome of the Royal Commission good news for fintechs in
general? What kind of opportunities does the upheaval create?
Q4: Look up one of the fintechs mentioned in the previous slide and evaluate
their value proposition. What is their competitive advantage and/or point of
differentiation?
Open Banking
Customers own their own banking data and are able to move their business
from one financial institution to another seamlessly.
Financial Advice
Financial Advice comes in two forms:
• General advice: informational in nature, disregards the client’s personal
circumstances.
• Personal advice: specific in nature and the financial advisor must sign off
on their recommendations through a Statement of Advice.
Financial Advice
Fintech and robo-advice are competitive spaces with high barriers to entry.
Existing products are either too complicated for consumers (broker tools) or
have limited scope (does not capture the client’s financial circumstances).
Financial Advice
Service providers and their capabilities…
Personal financial advice is comprehensive and involves a large suite
of services.
Financial advice encompass investment, tax, lending, budgeting,
accounting and legal.
Most providers choose to specialise and focus on a very narrow
spectrum of services.
Personal Advice
Consider the following scenario for the Simpson family:
Nuclear household
Client is married with two
children with a third on the way.
Full Time Employed
Client is the safety supervisor at a
nuclear power plant.
Stay-at-home Spouse
Occasionally works part time
School-aged children Family home
Personal Advice
The Simpson family’s financial and lifestyle goals:
Move to a
bigger house
Buy an
investment
property
Holidays every
2-3 years
Upgrade to a
family car
Private school
for the kids
Maximise
financial
security
Early
retirement
XPLAN
The point is…
Financial planning
is a complex affair with many
moving parts.
Personal financial advice
is a legally binding document
between the client and the adviser
Comprehensive tools
Financial advisers and brokers
need comprehensive tools to help
them manage their clients’ affairs.
There are many Australian
families just like the Simpsons…
XPLAN is a current market leader
in adviser and broker software…
XPLAN
A comprehensive and tailored solution for the Simpson family is a plan that
encompasses the following considerations:
Lending for home and
investment
Family Trust for wealth
and asset protection
Personal Insurance to
cover ‘long tail’ events
Super & Contributions
for tax effective
retirement saving
Legally binding wills &
estate planning
Regular savings and
investment plan to fund
lifestyle goals.
So what are advisers using to collect, analyse and manage all the data that
pertains to their client’s financial affairs?
Simple to Use
Cost Effective Comprehensive
Financial Planning Software
16%
20%
61%
• XPLAN is the incumbent and
market leader with 61% of
market share.
• AdviserLogic and Midwinter
are rapidly making inroads
with a combined 20% market
share.
• Excel is NOT an advice tool and
a shocking 16% of advisers
use it as their “enterprise”
business solution.
Activity 3
Q1: What are the different types of services offered under the ‘financial
advice’ umbrella and how are they grouped?
Q2: What aspects of the client’s circumstances require consideration when
offering personalised financial advice?
Q3: Why do you think 16% of financial planners are still using Excel to run
their advice business?
Q4: Based on slide 21, what kind of business model is driving product
development and rollout?
Superannuation
Why care about your superannuation?
• Superannuation is monies set aside during your working life to help fund your retirement.
• By law, your employer pays a portion of your salary or wages into a super fund for you.
• By law, the employer must give the employee the choice to select their fund and assign a
default fund where no election was made.
• Super funds invest your money in different assets and asset classes: shares, property,
managed funds, exchange traded funds, fixed interest, cash, alternative / ethical etc.
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
25 35 45 55 65 75 85
Annual Gross Income Before Tax
Age
Forecast – Personal Financial Lifecycle
Living expenses
Income over working life
Income during retirement
1. Why do expenses go up and then drop at around age 55?
2. Why is income jarred and piece-wise?
3. What can we do to plan for the drop in income?
4. What role does super play in personal financial management?
The Personal Financial Lifecycle
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
25 35 45 55 65 75 85
Annual Gross Income Before Tax
Age
Forecast – Personal Financial Lifecycle
Living expenses
Income over working life
Income during retirement
Taking control of one’s super
There are avenues for average working Australians to influence how their
super balances are invested. Most super funds allow their members to
configure their asset allocation.
Spaceship
• Spaceship is a fintech super fund targeting millennials by making super
and investment appealing and engaging – their marketing and tech
investment themes are on point with their target audience.
• Financial literacy – educating the public about super is a by product but a
useful one.
• Spaceship was fined by ASIC for misleading marketing.
Superannuation
This is a simple example of how Spaceship uses data visualisation to enrich
client experience. A simple bubble chart of significant holdings, their stock
price and whether domestic or foreign listed.
Gamifying Super
• Managing one’s superannuation is a boring process for most and a heavy
responsibility given its role in funding our retirement.
• Yet, Spaceship has made it seem fun and accessible to the younger
demographic. This is a valuable contribution.
Gamifying Super
• How useful and effective are some of these products?
• Under closer examination, Spaceship does not invest all that differently
from other industry funds – but it charges its members a premium!
• Are dashboards functional or merely cosmetic?
Aggregation Analytics Performance
Tracking
Repackage
Investments
Market Cap
Rebalance
Index
Tracking
Fund on
autopilot
Gamifying Super
• Spaceship gives members the illusion of control and choice through
investment selections that do not have a material impact on the final
outcome – all the money goes to passive funds with 3 or 4 premixed
themes.
• No one is actively managing any of these investments – fund managers
simply buy the index using a ’set and forget’ strategy.
Conservative Balanced Growth High Growth
Next Week
Regtech – Lecture 1
• Understand what is compliance and appreciate the role it
plays in ensuring proper market operations.
• Define Regtech and discuss how it facilitates and enables best
practice in industry regulation, enforcement and compliance.
• Analyse the product and business model of a Regtech
operator.
• Evaluate the role of regulatory sandboxes and how they add
value in the development of tech-enabled financial services
ecologies.

The post W3: FINM4100 Fintech: Redefining Financial Services appeared first on My Assignment Online.