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Finance
Finance
(MANAGERIAL FINANCE)
HAND OUT DATE: (04/11/2019)
WEIGHTAGE: (50) %
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INTRODUCTION
There is no denying how important the finance sector is for the society and daily lives
of people all around the world. While this industry has encountered significant shifts
over the centuries as to political, geographical systems and regulatory amendments,
many scholars (Berger 2003)(S.N. 2016)(Shim & Shin 2016) claim that the rise of
FinTech has generated a new age for banks.
The inter-connection of finance and technology has a long record. A new era
of FinTech has flourished since the Global Financial Crisis (GFC), 2008. This
generation does not focus on financial products or services delivered, but on who
provides them and the implementation of retail and wholesale increasingly evolving
technologies. The recent developments in FinTech driven by start-ups provide both
regulators and market participants with pressures to sustain the prospective
opportunities of innovation with the potential threats of emerging strategies.
LITERATURE REVIEW
Over the past centuries, the financial industry has been growing, as the first bank was
founded in 1472, accompanied by a vast number of other companies (e.g. brokerage
firms, insurance companies, property agents). Financial firms are sometimes pointed
to as service companies because they assist businesses in the prime market and have
over time formed a secondary market in which financial service firms engage among
themselves. This led in a vast network of associations, more sophisticated, relational,
and less linear than conventional manufacturing and retail industries (Zhu, Kreamer &
Dedrick 2004).
Technology, the other part of FinTech has become a significant factor in handling
financing in today’s digitalized world. According to (Bouwman et al. 2005), a
technology is a more convenient approach to organizing, managing activities and
conducting tasks. This particular concept considers both analogue and digital
technology, which dispersed throughout the financial industry. Earlier analysis on
FinTech's evolution by scholars like (Lee & Shin 2018) also clearly shows that
financial technology has a longer history than FinTech itself. Since the 1990s, (Lee &
Shin 2018)have associated FinTech's origins with dissemination of the
Internet.(Arner, Barberis & Buckley 2016) portrayed a wider vision and already
understood the mid 90th century financial developments.
Evolution of FinTech
(Arner, Barberis & Buckley 2016)’s analysis splits FinTech's evolution into three
divergent periods.
DISCUSSION
Ø Crowdfunding
FinTech has also brought dramatic improvements towards other important financial
roles as, raising capital. The main role of financial sector has always been to
determine which firms and individuals to receive credit and investments
to support them expand and flourish. The key breakthrough designed by FinTech in
raising capital is the innovation of crowdfunding.
Crowdfunding typically refers to the practice of early-stage companies gathering
capital via the internet from large communities of individuals, often supported by
social media and promotions. It helps in connecting individuals who are willing to
lend or invest directly with those who require financing for a particular project. Both
debt and equity crowdfunding platforms are brokering financial services, whose
financial returns rely on their expected cash flows. Both approach the mass crowd or
public over the internet to pair investors and financier like a stock exchange in a way
similar to a marketplace.
One of the important crowdfunding methods that is flourishing in the debt financing
sector is the peer-to-peer lending (P2P lending) or crowdlending. This involves
connecting borrowers and lenders directly through the internet. While crowdfunding
is usually engaged towards long-term investment in a single project, P2P system
collects investors’ capital into a common fund, and then creates multiple loans for
different borrowers.
Users are offered multiple alternatives for digital payments. For money transfer, users
may use conventional banking services or prefunded e-money or payment services
run by non-banking payment service provider (PSP). Non-banking firms use
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Ø E-money
While e-money accounts are equivalent to bank accounts and enable money to be held
unlimitedly, payment accounts are more linked to the pass through accounts for future
payment transactions. It is a digital store of monetary worth on a technological device.
The buying potential lies in a personal physical tool or professional systems, such as
e-wallets, based on the kind of e-money.
• E-money system is be deemed a banking operation in the first one and are
exposed to bank-like fiduciary supervision. In countries like South Africa, a
• Many countries demand that the funds kept by customers at least contribute to
the unpaid e-money. It is intended to ensure that all refund demands can be
fulfilled at all periods and that adequate funds are required to meet the
allegations of e-money owners in the case of e-money bankruptcy or e-money
service provider.
Ø Blockchain
Besides asset management and crowdfunding, FinTech has pioneered in a far more
profound aspect of finance, which is the currency system itself. Virtual currency
refers to an unregulated digital currency system that is generated and held
electronically.(Maftei 2014)Virtual currency is founded upon the concept of trading
value without an organization's permission.
(Ehrentraud et al. 2020) discussed that among various countries they analysed, only
few have specific DLT regulations and only Switzerland form their survey had issued
a DLT regulation framework. While some countries like France has incorporated
certain DLT frameworks. The purpose of the draft issued by the Swiss Federal
Council is to further strengthen the regulatory environment for DLT in Switzerland by
expanding legal clarity, minimizing obstacles to DLT-based technologies and
reducing the likelihood of misuse. Internationally, DLT is used to finance private
transactions of shares, interbank settlements and netting systems for repo and foreign
currency markets.
An example of RegTech is the KYC (Know Your Customer) system, which facilitates
banks to check the customers’ identities when opening an account. The use of AI in
KYC frameworks can improve fraud prevention, and strengthened cyber threat
security of customer data, evolving the KYC approach towards KYD (Know Your
Data) framework.
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CONCLUSION
This paper has demonstrated FinTech's evolution across three key eras, resulting in
current FinTech 3.0, marked by rising globalization, with close overview on
FinTech’s global regulatory environment and management of FinTech’s underlying
risks. This transition to FinTech 3.0 arose from the 2008 GFC in emerging economies
and was guided by investor aspirations and pressures, the migration of digital firms to
the financial sector, and political needs for a more diversified banking environment.
With FinTech's advancement, regulators do not want to surge prevailing risks, notably
cyber security and fraud. Modern payment mechanisms and instruments may bargain
the veracity of the market and eventually the monetary policy; new items could be
offered inappropriately to customers who do not recognize or cannot afford to cover
their costs. FinTech includes the complexities of incorporating these technologies into
traditional business systems and the threats associated. Henceforth, the financial
sector is one of the globe’s most extremely regulated areas.
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REFERENCES
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Fintech-Evolution, Springer-Verlag Berlin Heidelberg.
Arner, DW, Barberis, J & Buckley, RP 2016, 'FinTech, RegTech and the
Reconceptualization of Financial Regulation', Forthcoming: Northwestern Journal
of International Law and Business, p. 51.
Arner, DW, Barberis, J & Buckley, RP 2016, 'The evolution of FinTech: A new
post-crisis paradigm?', Georgetown Journal of International Law, vol 47, no. 4, p.
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Berger, AN 2003, 'The Economic Effects of Technological Progress: Evidence
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Shim, Y & Shin, D-H 2016, 'Analyzing China ’ s Fintech Industry from the
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