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    Fintech 10

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    Taaran Reddy
    The document outlines several downsides and risks of fintech including: 1) Financial instability from algorithmic trading and retail investor coordination that can drive flash crashes and short squeezes. This led to bank runs at SVB and Signature Bank. 2) Many fintechs operate without profits and cut costs on security, customer service and regulatory compliance when funding dries up, putting customers at risk. 3) Security risks include data hacking, identity theft, crypto exchange hacks and ransomware attacks due to fintechs' lack of security resources compared to traditional financial institutions. 4) Questions around long term sustainability, trust and customer recourse given the venture capital funding model and lack of physical presence for

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    Fintech 10

    Uploaded by

    Taaran Reddy
    17 views22 pages
    The document outlines several downsides and risks of fintech including: 1) Financial instability from algorithmic trading and retail investor coordination that can drive flash crashes and short squeezes. This led to bank runs at SVB and Signature Bank. 2) Many fintechs operate without profits and cut costs on security, customer service and regulatory compliance when funding dries up, putting customers at risk. 3) Security risks include data hacking, identity theft, crypto exchange hacks and ransomware attacks due to fintechs' lack of security resources compared to traditional financial institutions. 4) Questions around long term sustainability, trust and customer recourse given the venture capital funding model and lack of physical presence for

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    The document outlines several downsides and risks of fintech including: 1) Financial instability from algorithmic trading and retail investor coordination that can drive flash crashes and short squeezes. This led to bank runs at SVB and Signature Bank. 2) Many fintechs operate without profits and cut costs on security, customer service and regulatory compliance when funding dries up, putting customers at risk. 3) Security risks include data hacking, identity theft, crypto exchange hacks and ransomware attacks due to fintechs' lack of security resources compared to traditional financial institutions. 4) Questions around long term sustainability, trust and customer recourse given the venture capital funding model and lack of physical presence for

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    17 views22 pages

    Fintech 10

    Uploaded by

    Taaran Reddy
    The document outlines several downsides and risks of fintech including: 1) Financial instability from algorithmic trading and retail investor coordination that can drive flash crashes and short squeezes. This led to bank runs at SVB and Signature Bank. 2) Many fintechs operate without profits and cut costs on security, customer service and regulatory compliance when funding dries up, putting customers at risk. 3) Security risks include data hacking, identity theft, crypto exchange hacks and ransomware attacks due to fintechs' lack of security resources compared to traditional financial institutions. 4) Questions around long term sustainability, trust and customer recourse given the venture capital funding model and lack of physical presence for

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    of 22

    The Downsides of Fintech

    Financial Markets and Fintech


    Agenda
    • Financial instability
    • Unprofitable enterprises
    • Regulatory Flux
    • Security & Unauthorized transactions
    • Data protection
    • Venture Capital vagaries
    • Digital Exclusion
    • Poor recourse & trust
    • A long rope
    Financial instability
    • Dow fell 1000 points and recovered in minutes

    Flash Crash 2010 • Trading algorithms largely responsible

    Short Squeeze • Online communities trading via fintech like Robinhood drove up
    stocks that hedge funds were short

    2021
    • Happened again in 2023 Aug
    • Game Stop, Yellow Trucking, BB&B, Tupperware

    • Collapse of SVB

    Bank Runs 2023 • Signature Bank


    • Largely driven by digital banking platforms that allow instant access
    to funds
    Bank Runs Then and Now

    • Retail investors could move their money out of SVB instantly using fintech, without going to the bank
    Stockbroking Then……

    • To trade you had to inform/call your broker.


    • Broker would call their exchange representative
    • Exchange representative would execute via market maker
    Stockbroking Now……
    • Everything is electronic
    • Intermediate layers are
    gone
    • Orders can be executed
    instantly
    0DTE Options – volumes exploding
    0DTE Options – Share of total options
    increasing
    0DTE Options – Share of retail traders
    increasing
    Unprofitable Enterprises
    • Initial services are good
    Uncertain Service • Profit motive reduces quality
    • e.g. Klarna

    • Security
    Investments in • Customer service
    critical areas minimal • Many fintechs fired employees as funding dried up

    Regulatory & • Robinhood surviving on payment for order flow


    principle skimping • FTX
    The state of UK Fintechs
    Regulatory Flux

    A new name • RBI Banks Prepaid Instrument linked


    credit line
    doesn’t change • Initial Coin Offerings skip traditional
    products/process offering process

    • Coinbase sued for operating as an


    Unregulated unauthorized exchange
    Businesses • Staking as a service. Crowdfunded PoS
    for mining requires registration
    Security and Unauthorized Transactions
    • Jamtara
    Fraudulent Payments & • Easy to prey on uninformed
    Transfers • ATM Skimming

    • Mt Gox
    Hacking of • Bitfinex
    CryptoExchanges & Wallets • FTX
    • Binance….

    • Karvy
    Unauthorized trading/fund • India Nivesh Securities
    use in client accounts • NSEL
    Data Protection

    • Equifax – personal data


    Data Hacking & • Revolut
    Identity Theft

    • Fintechs are especially vulnerable


    Ransomware • Do not have resources of large
    Attacks FIs
    Venture Capital Vagaries

    • Fintechs raised huge amounts of Capital in


    Fair Weather the years of low rates
    • Fintech Funding has since dried up
    Friends?

    • Service levels/quality turns patchy


    Lack of Resources • Employees are fired
    leads to skimping • Unable to invest per new regulations
    • Innovation turns to survival

    Can such volatile entities be a part of the financial infrastructure?


    Digital Exclusion
    • Fintech depends on tech • UX and product design
    • Multi – lingual capability
    • Access
    • Innovations
    • Ability to use • Credit Scoring
    • Several Barriers exist • Voice based tools
    • UPI on IVR
    • No mobile phone
    • Poor connectivity
    • Language difficulty
    • Unfamiliarity with tech usage
    • Aged
    • Uneducated
    • People with disabilities
    • New Segments entirely, e.g. NTC
    Poor Recourse & Trust
    • People are used to human contact in financial products

    Recourse
    • Who to contact if a robo adviser causes losses?
    • Who to contact if a crypto currency transaction does not go
    through?
    • Who to contact if I want to prepay my digitally obtained loan
    (this causes losses for fintechs)

    • Once bitten twice shy

    Trust
    • Regulations can help
    • However when funding is scarce, many of these are bypassed
    • Can I trust an entity that lives in the digital world with my money
    • Especially if it is not directly regulated?
    A long rope
    • Venture capital allows for experimentation
    • Are so many fintechs sustainable?
    • Many will run out of funding
    • Others will get acquired
    • What is the trust in such business models – here today gone
    tomorrow?

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