ISOM 2010

Introduction to Information Systems

Lecture 7: E-Commerce (Financial Technology)

ALL RIGHTS RESERVED © 2020 Zhitao Yin

Reminder

q No lecture: Thursday (Oct 1st, 2020)

q Email template:
• Subject title: [ISOM 2010 session Lx]: your request
• Recipients: Professor and/or TA
• Student info: ID, Name

q Lecture: Purely online

q Group project:
• 4-5 students per group
• Send group info to TA (Olivia Chan, imolivia@ust.hk) before 1 pm Sept 30.
• After Sept 30, students without a group will be randomly formed into groups by TA.
Last Class

• What is information good?

• Economic features of information goods
• Fixed cost
• Marginal cost
• Capacity
• Versioning pricing strategy [Calculation]
• Non-versioning vs. versioning
• Which version to offer
• Pricing of versions
• Bundling pricing strategy [Calculation]
• Non-bundling vs. bundling
• Limitations of bundling
Lecture Roadmap

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Today’s Game Plan

• What is Financial Technology?

• Big Data in FinTech

• Blockchain

• Algorithmic Trading

• Robo-advising

• Crowdfunding
What is FinTech?

• Financial Technology refers to technological innovation in the design and

delivery of financial services and products.
What are the categories of FinTech?
Big Data in FinTech
• The term Big Data typically refers to datasets
having the following characteristics:

– Volume: The amount of data collected in files,

records, and tables is very large, representing many
millions, or even billions, of data points.

– Velocity: The speed with which the data are

communicated is extremely great. Real-time or near-
real-time data have become the norm in many areas.

– Variety: The data are collected from many different

sources and in a variety of formats, including
structured data (e.g., database tables or Excel files),
and unstructured data (e.g., video messages).
Big Data in FinTech
Big Data in FinTech encompasses data generated by

q Financial markets (e.g., equity, fixed income, futures, options, and other derivatives)

q Businesses (e.g., corporate financials, commercial transactions, and credit card purchases)

q Governments (e.g., trade, economic, employment, and payroll data)

q Individuals (e.g., credit card purchases, product reviews, internet search logs, and social media posts)

q Sensors (e.g., satellite imagery, shipping cargo information, and traffic patterns), and, in particular, The
Internet of Things, or IoT (e.g., data generated by “smart” buildings, where the building is providing a
steady stream of information about climate control, energy consumption, security, and other operational
details)
Such data together with analytics tools generates significant effect on how professional
investors approach financial analysis and decision-making processes.
Blockchain: Process of Purchasing a House

Ownership Change of
Verification Ownership

Sell Buy

Michael Jason

Money Financial
Transfer Status
Verification
Blockchain: Process of Purchasing a House
• Is it ok to get rid of
Ownership Change of government and bank
Verification Ownership in the transaction?

Sell Buy

Michael Jason

Money Financial
Transfer Status
Verification
Blockchain: Process of Purchasing a House

Security issue
Michael Transaction cost
Ownership
information stored in the
government ‘s centralized
database
Blockchain: Process of Purchasing a House

Ownership information is Immutable by design

stored in a chain of blocks

Each block records each

transaction
Distributed ledger/database
Michael
More secure
Disintermediation -> less cost
Blockchain: Definition
• A type of database/ledger that is shared among servers/computers in a network.

• In a distributed ledger, entries are recorded, stored, and distributed across a

network of participants so that each participant has a matching copy of the digital
database.

• Basic elements of a blockchain includes

• a digital ledger,
• a consensus mechanism used to confirm new entries, and
• a participant network.
Blockchain: Using blockchain to replace banks

Financial
Status
Verification

Financial status info is stored

Jason in a chain of blocks

Each block records each

financial change for Jason.
Blockchain: Process of Purchasing a House

Ownership Change of
Verification Ownership

Sell Buy

Michael Jason

Money Financial
Transfer Status
Verification
Algorithmic Trading

Algorithmic Trading Process

NYSE Stock Exchange
Algorithmic Trading

• Algorithmic trading is the computerized buying and selling of financial instruments, in

accordance with pre-specified rules and guidelines.

• Algorithmic trading provides investors with many benefits, including speed of execution,
anonymity, and lower transaction costs. Over the course of a day, algorithms may
continuously update and revise their execution strategy on the basis of changing prices,
volumes, and market volatility.

• Algorithms may also determine the best way to price the order (e.g., limit or market
order) and the most appropriate trading venue (e.g., exchange or dark pool) to route for
execution.
Algorithmic Trading: Renaissance Technology

• Algorithmic trading is the

computerized buying and selling of
financial instruments, in accordance
with pre-specified rules and
guidelines. [Math models, analytics,
algorithm]
Robo-advising
Financial advisor

Wealthy and ultra-wealthy

individuals typically have had
access to human advisory teams

Robot advisor

the availability and quality

of advisers to serve
investors with less wealth
Robo-advising
Robot advisor
Robo-advising
Two types of wealth management services dominate the robo-advice sector:

q Fully Automated Digital Wealth Managers

The fully automated model does not rely on assistance from a human financial
adviser. These services seek to offer a low-cost solution to investing and recommend
an investment portfolio, which is often composed of ETFs. The service package may
include direct deposits, periodic rebalancing, and dividend reinvestment options.

q Adviser-Assisted Digital Wealth Managers

Adviser-assisted digital wealth managers provide automated investment services
along with a virtual financial adviser, who is available to offer basic financial planning
advice and periodic reviews by phone. Adviser-assisted digital wealth managers are
capable of providing additional services that may involve a more holistic analysis of
a client’s assets and liabilities.
Robo-advising: Implications of Financial Services
Financial advisor

Collaboration

Robot advisor

Redefine the value of customers

An Example of Crowdfunding
An Example of Crowdfunding

• In your mind, what are the benefits of using crowdfunding to finance a

business idea?
An Example of Crowdfunding

• In your mind, what may prevent you from using crowdfunding to finance a
business idea?
Benefits & Costs of Crowdfunding

Benefits
• Access to funding
• Marketing
• Product development
• Subsequent financing
• …

Cost
• Intellectual property
• Signal of entrepreneurs’ capability
• …
Key Takeaways

• What is Financial Technology?

• Big Data in FinTech (characteristics, sources)

• Blockchain (benefits)

• Algorithmic Trading

• Robo-advising (implications)

• Crowdfunding (benefits and costs)

Next Class

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 Let me know if I can help!
Suggestions are always welcome!

Zhitao Yin
Office: LSK Room 4058
Email: zhitaoyin@ust.hk