Presentation HKUSTFintechSeminar TomoOsumi MBAFT2014 Ver1.00 ForSharing

TECHNOLOGIES AND FUNDAMENTALS
BEHIND FINTECH
September 13th, 2017 – Fintech Seminar, HKUST Business School
Tomotaka Osumi
Manager, Cloud Services, NTT Communications
Founder, HKUST MBA Tech Club
tomo.osumi@gmail.com
SPEAKER PROFILE
Tomotaka Osumi
Manager, Cloud Services – NTT Communications

Focusing on enterprise cloud business/operation automation and
business process optimization as a manager of OSS/BSS
development. As IT and telecom expert especially in software
development and business incubation, experienced VoIP wholesale
(2-year), social media business launch (4-year) and
enterprise/public cloud hosting (3.5-year).
MBA (FT 2014), HKUST Business School

MEng in Information Processing, Tokyo Institute of Tech.
BEng in Computer Science, Tokyo Institute of Tech.
Founder of HKUST MBA Tech Club

Member of Beta Gamma Sigma HKUST Chapter
SLIDE 2 Fintech Seminar, HKUST Business School - Sep 13 2017

ACTIVITIES IN HKUST BUSINESS SCHOOL
Launched HKUST Tech Club, participated in HKUST Prize 2013 Dubai, a business plan
competition, and did exchange program in Tsinghua MBA in Beijing, China. Also created
hkustmbajp.com to promote HKUST to potential MBA applicants in Japan.

Breaking News in August 2017
Current issues in Fintech and its related industry
AI for wealth management
“Banks can save cost and make it
easier to reach tech-savvy clients
with robo-advisers, or financial
advice offered by computer
programmes.”
South China Morning Post, Aug 16, 2017

IT giants more than big banks
in mobile payment
“JPMorgan every year, as we speak,
processes through our QuickPay 94
million payments, but Tencent, the
Chinese company, over Chinese New
Year, in five days processed 46 billion
payments. Basically that means 800
million payments per hour.”
South China Morning Post, Aug 11, 2017

Bitcoin hard-fork in August
“Following an ideological conflict over
the future of bitcoin, as transaction
volumes increase to unmanageable
levels, rebel users on Tuesday
created a new version of the
currency known as Bitcoin Cash.”
Financial Times, Aug 1, 2017

Everyone thinks Fintech is something innovative
and cutting-edge, but does not know its
technologies and fundamentals.
AGENDA
1. Fintech industry and trend
2. Key technologies behind Fintech

− ICT Partner, Cloud, Security, Software development (DevOps), AI etc
3. Fintech case study

− Lending technology – Lending Club
− Payment technology – stripe
− Cybercurrency – Bitcoin and blockchain

Fintech Industry and Trend
Fintech trend influence big banks as well as start-ups
“There are two big opportunities in future
financial industry. One is online banking, all
the financial institutions go online; the
other one is internet finance, which is
purely lead by outsiders” (July 2013)
Jack Ma
CEO, Alibaba
Reference: Financial Times, July 1 2013

FINTECH AND ITS RANKINGS
Finance + Technology, New technology and innovation that aims to compete with traditional
financial methods in the delivery of financial services. Asia take vital role to lead Fintech
Ranking Fintech Forward 2016 Top Fintech Unicorns 2016

American Banker Business Insider
1 Tata Consultancy Services 1 Ant Financial - Alipay

2 FIS 2 Lufax - Chinese peer-to-peer lender
3 Thomson Reuters 3 JD Finance - Online finance services tied up with shopping
4 Fiserv 4 Qufenqi - Lets Chinese consumers buy electronics
5 Cognizant 5 Stripe - Online payment processing
6 NTT Data 6 SoFi - A marketplace for student loan refinancing
7 Infosys 7 Credit Karma - Free credit scores
8 NCR 8 Oscar Health - Online health insurance
9 TSYS 9 Mozido - A mobile payment and wallet provider
10 Nomura Research Institute, Ltd 10 Adyen - An online payment processor
Reference: Ranking Fintech Forward 2016, American Banker Reference: Business Insider UK, Aug 1 2016

GLOBAL FINANCING TREND TO VC-BACKED FINTECH COMPANIES
Venture Capitals are getting active in Fintech rapidly and VC-Backed Fintech companies
attract US$ 12.7B across 836 deals in 2016.
Global
Asia
Reference: The Global Fintech Report 2016 In Review, CB Insights

TOP 20 GLOBAL VC-BACKED FINTECH DEALS IN 2016
Fintech started from Silicon Valery start-up firms after “Global Financial Crisis 2008”. However,
Asia, especially China and India becomes next booming business location of Fintech.
Reference: The Global Fintech Report 2016 In Review, CB Insights

UNBUNDLING OF BANK – Wells Fargo
Big banks has all-in-one financial services. Fintech startups do “unbundling” small portion of
them as high quality and user-friendly services independently
Reference: CB Insights
“Silicon Valley is coming …. and
they all want to eat our lunch”
Jamie Dimon
CEO, JPMorgan Chase
Reference: JPMorgan Chase Annual Shareholder Letter, 2015

FUTURE OF BANKING – 4 SCENARIOS
The advent of digital technology and, more importantly, its adoption by customers is
changing the fundamentals of the business. Future of banking will be 4 possible scenarios.
Scenario 1 Digital Banking

Legacy Banking Platform
Better Bank Interface
Customers
Scenario 2
Build-for-Digital Banking Platform
New Bank
Customers
Fintech Providers
Scenario 3 Banking Service
Fintech Providers
Distributed Bank Aggregator
Fintech Providers
Customers
Banking Platform
Scenario 4
Fintech Providers Social Network
Disintermediated Bank Banking Interface
Fintech Providers
Customers
Fintech Providers
Reference: Alessandro Hatami, BANKNXT, October 6, 2015

CATCH UP FINTECH TRENDS
Following blogs and websites are samples to catch up Fintech trends. Recommend to track
some of them or other major information to know hot issues.

Technologies Behind Fintech
Key to survive in drastically changing situation
Choosing technology is
deciding direction for firm
“MUFG initially will put market
research and fintech functions
on the cloud. Adding new
functions with internet-based
computing does not require
adding servers, so the process
from planning to building the
functions takes only around one
month instead of the four
needed with the previous
method, the company said.”
Nikke Asian Review, Jan 23, 2017

TECHNOLOGY ISSUES FINTECH FIRMS ARE FACING
Fintech firms are facing 3 IT transition phases to adopt its business growth; 1) agility for
start-up phase, 2) security for growing phase, 3) reliability for established phase. Transition
happens in very short-term especially in Fintech. Thus, choosing right ICT partner is key.
1. AGILITY 2. SECURITY 3. RELIABILITY
ICT Partner
Start-up Agility Global Expansion Same as ”Bank” quality
• A Super techie is the world • Teamwork is a key factor • Management/Compliance is key factor
• Virtual server is enough • Need several combination of ITs • Reliability and business continuity
• Repeating scrap and build • Global rapid expansion • Reduce operation cost with ICT partner
• Agile development • Security is required
• Choose right ICT partner for growth

ENTERPRISE CLOUD HOSTING – CAPABILITY TO GROW
Cloud computing gives business unit agility, security and reliability to adapt drastic market
change. With ICT partner, Fintech firm is able to concentrate its main business domain,
resulting in smooth business expansion.
BEFORE WITH CLOUD

1) Pay-per-use model
Portal/Control Panel
2) Drastic resource shift
3) Global expansion without
physical presence
Build physical site, 4) Cut operational cost
equipment, large- 5) Reliable service quality
investment and time- Manage from online
consuming
One-stop capability of ICT partner is important for drastic and smooth business growth!!

DATA CENTER – HIGH QUALITY NEEDS FROM FINANCE
“High frequency trading (HFT) now accounts for up to 70 percent of turnover in U.S. equity
markets, according to press reports. Following this trend, Asian hedge funds, investment
banks and other institutional investors are enhancing their IT infrastructure and adapting
trading strategies to stay competitive in a trading environment where every microsecond
counts.” (NTT Com Global Watch vol.3, Revised March 2015)
Ex-CEO, NTT Com Asia Limited
Takanobu Maeda
196 countries/regions connectivity

World Top 3 Data Center Player with 136 sites

API – COMMON FORMAT TO CONNECT SERVICES EASILY
API = Application Program Interface. It was tough work to connect with other system by
defining data format from the scratch. However, API provides common interface. Therefore,
a Fintech startup focuses on its business domain by connecting API for other functions.
API gateway services Creditcard payment API by Square, mobile payment unicorn

SECURITY – ACQUIRING END-CUSTOMERS’ TRUST
Security is essential factor for Fintech firms to manage trade-off between usability from
mobile and data protection. ID/Password authentication is vulnerable for Fintech services.
Security solution should be attached to secure end-customers’ trust.
M-Pin, Next-Gen Online Authentication • Bring your own devices

• Easy integration with services
• Zero-knowledge high-secured
implementation
OK
NG Fintech services with

sensitive data
Other Two-Factor Authentication Providers
Google Authenticator

DEVOPS – MANAGING SPEED VS QUALITY TRADE-OFF
DevOps: Software development and delivery process that emphasizes collaboration

between product management, software development, and operations professionals,
resulting in flexible and agile service management to adapt market change
NTT TechnoChross DevOps Implementation

Test request Deploy and test
Development
Feedback Feedback
Quick market-in
Continuous Integration Staging with high quality
Version Management (Jenkins)
(Git Server) Check
Review
push new version
Production
Developer is able to assure
quality by writing software
because quick feedback
Developers
NTT TechnoChross applies DevOps to its software development (e.g. OpenStack Installer) and
succeeded to guarantee both quality and agility in spite of handling unstable early-stage technology

MACHINE LEARNING FOR AI - ROBO ADVISERS
Machine learning is getting a common method for Fintech to predict and advise future
expectation, based on previous huge data, continuously optimizing algorithm.
Machine learning framework
What can I do it change

Why did it happen? What will happen?
an outcome?
AI is not a magic wand. Business manager needs to see details of data and should define
what outcomes manager wants gain from the data and why, connecting business outcome.

CONENCTING TECH PEOPLE IN HONG KONG
Connecting techies is the fastest way to learn essential and latest knowledge of Fintech and
related technologies. Hong Kong has several networking opportunities with them.
Business incubation center (Hong Kong) Business incubation center (Shenzhen)
Co-working space – Each provides several networking and tech session, check regularly
Exhibition center

HKUST MBA TECH CLUB – JOIN TECH CLUB !!
HKUST MBA TECH CLUB lead by Yoshi Imanishi in this intake is a point to contact tech firms
and startups in both Hong Kong and Asia, especially in China. Appreciate your participation!
• Learn: Expert Lecture - 4pm-6pm, 15th September 2017 LSK Building

− Mr. Jai Thampi, Head of Digital Transformation & IoT Solutions, Asia Pacific
• Experience: Shenzhen Trek in October (TBC)
• Network: Alumni Mixer in October (TBC)
Please contact us at: yimanishi@connect.ust.hk

Case Studies
Lending technology, payment technology and cybercurrency
Lending Club
Case Study 1: Lending Technology
BUSINESS MODEL - LENDING CLUB
Founded in 2007, Lending Club provides a peer-to-peer (social) loan services and has
facilitated over 28.7 billion US Dollars in these types of loans, so called ”Lending as a Service
(LaaS)”. “Credit” process to the customers is its fundamental to guarantee and lower margin.
Reduce Providing competitive rates Increase

borrowing rate for both borrowers and investors lending rate
Capital
Notes (public)
Application
Certificates (Trust – private)
Loans (private)
Borrowers Investors
Purchase
Federal and State Loan Federal and State
price Regulations
Regulations
Loan
Issuing Banks
Loan Proceeds

LENDING CLUB BUSINESS FUNDAMENTAL
Key differentiator of Lending Club is reaching customers that typical bank do not want to
offer because of credit score or small lending volume, as well as competitive rates for both
investors and borrowers.
• For Investors: Provides almost “direct” investment options with higher rate
• For borrowers: Provides lending options with lower rate

− Lending club is approaching segment that banks are not willing to lend by taking risks
46.12% for Refinancing
Reference: Lending Club website

CREDIT SCORES – LENDING CLUBS
Borrowers are ranked by 35 credit scores, based on the same information as credit card
companies and credit report such as income, existing debt, payment history, and purpose
of use. 10 percent of applicants are accepted.
The rates are much competitive than banks for both borrowers and investors

TECHNOLOGY MAKES NAMELESS TRADE REAL
Our matching system uses a powerful algorithm called LendingMatch™,

which works along the lines that any two people are connected to each
other by varying degrees of separation.
LendingMatch™ finds relationships between borrowers and lenders

based on geography, education, profession, or connectedness within a
given social network and then presents lenders with diversified loan
portfolios reflecting these relationships as well as the lenders’ individual
risk preferences. Moreover, LendingMatch™ serves to show borrowers
that their loans are not being funded by faceless nameless banks, but
rather are coming from real people.
Reference: Lending Club Blog

IPO, CEO RESIGNED AND NEXT ? – STILL RAISING VOLUME
In Dec 2014, Lending Club priced its initial public offering at $15 a share to give the eight-
year-old company a valuation of 5.4 billion US Dollar. Renaud Laplanche, CEO was fired
over faulty loans in May 2016, resulting in stock price crash more than 25 percent.
Lending Club IPO in Dec 2014
Again, reliability of the service is key

for business continuity
SLIDE 36 Fintech Seminar, HKUST Business School - Sep 13 2017 Reference: Wall Street Journal, May 9 2017
REFERENCE: P2P LENDING AS A GLOBAL PHENOMENON
Reference: :Liberum Capital, 2014

stripe
Case Study 2: Payment Technology
STRIPE - ONE-STOP EMBEDED PAYMENT
Traditional way to support online credit card payment was tough and time-consuming. Strip
provides one-stop solution with easily system integration, providing APIs and best practices
suitable for DevOps. Thus, small business owner easily supports credit card payment method.
Traditional business operation to support credit card Stripe is disruptive
BEFORE AFTER
Contracting acquirer PCI

payment provider
Visa, Matercard
Audit
Examination
Contracting
Issuer
Report
stripe
APIs
Business Other credit card provider (e.g. AMEX) Business
Owner Owner
Supporting cross-border transaction and compliance

STRIPE WEB UI AND COMPARISON WITH PAYPAL
Paypal actually takes similar role for online payment, but stripe differenciates it from Paypal
by 1) “embedded” web UI in the service instead of page transition, 2) developer friendly APIs
and SDKs suitable for DevOps.
Embedded payment in your site Developer friendly APIs/SDKs
Customize UI by
your own to be a
part of your
website

MORE FEATURES HELPFUL FOR ONLINE BUSINESS OWNERS
stripe provides more features to support secure and flexible online payment; 1) stripe radar
is a fraud protection tool based on machine learning with huge stripe transaction, 2) stripe
sigma is developer friendly transaction management tools for marketing data analysis
stripe radar – fraud protection stripe sigma – data analysis
SQL (common database language) based data

analysis tools to create report easily
It makes marketing action more engineer-driven

programmable rule for business owners and data-oriented
Bitcoin and Blockchain
Case Study 3 : Cybercurrency
BITCOIN
Bitcoin is a worldwide cryptocurrency and digital payment system called the first
decentralized digital currency, since the system works without a central repository or single
administrator.
• Invented by an unknown programmer, Satoshi Nakamoto in 2009
• Distributed ledger called “blockchain”

− High security: Falsification is extremely difficult and avoid “double-spending” issue
− All transaction is visible from public and no central organization to manage it
• Easy to transport anywhere in the world
• “Money of Liberty”
• Legal issue is still in progress to adapt in many countries

BLOCKCHAIN
Blockchain is continuously growing list of records, called blocks, which are linked and
secured using cryptography. Falsification of any part of records is extremely difficult and
blockchain solves “double spending” problem, creating trusted and secured records.
past Block = transactions + hash Block = transactions + hash future
àD Transaction K à M Transaction Q à B Trans
Hash
Hash
Hash
àB Transaction E à P Transaction A à U Trans
àG Transaction N à M Transaction Z à L Trans
Hash is a data used to summarize previous by encrypted text string.
If hacker modifies a transaction record in the past, hacker needs to re-create hashes
in all block one by one. Thus, falsification is extremely difficult.

PROOF OF WORK (1/2)
1) Sender sends Bitcoin to receiver (normal transaction), 2) sender also sends its
transaction record to miners, 3) miners started to find right hash by solving heavy
mathematical problem, 4) one of them find the right hash
Find it !!
Calc hash
Calc hash
Calc hash
Miner Calc hash
Miner
Calc hash
Calc hash
Miner
record
record Miner
record record Miner
Miner record record
Sender Receiver
PROOF OF WORK (2/2)
5) Miner who finds right hash adds a new block to blockchain, 6) get 25 BTC as an incentive,
7) other miners and traders confirm a new blockchain is correct from the hash, 8) repeat it
from “1” for next block
Confirm !
Confirm !
Find it !!
Confirm !
Miner
Confirm ! Miner Confirm !
Miner
Miner Reward
25 BTC
Add new block Miner
Miner
Confirm !
NEW Confirm !
Receiver (Trader)
Sender (Trader)
BITCOIN MINERS’ COMPUTING ENVIRONMENT
Bitcoin miners need huge computing powers as more miners join the bitcoin mining
network. Major Bitcoin miners are firms focusing on Bitcoin mining.

TRANSACTION VOLUME COMPARISION
Bitcoin still has much work to improve transaction volume to stand up as a global standard
payment system. Visa and MasterCard are still giants in the payment market overall.
• a
Reference: :Statista, Dec 2013

SMART CONTRACT BY BLOCKCHAIN
Ethereum another cybercurrenty, supports “smart contract”, which enables transparent

contracting process and cuts middle man by blockchain. UJO, a Fintech start-up, launched
UJO MUSIC by the scheme to connect artists and listeners more directly,
Blockchain is challenging copyright

management issue, shifting central
management by copyright organization to
more individual and distributed
management
Conclusion
Wrap up the presentation
WRAP UP THE PRESENTATION
1. Fintech looks fancy, but understand technologies and fundamentals

behind Fintech
2. Fintech is not only for start-ups movement, big banks also need to make a
shift and adapt the change
3. Think and predict what will happen in your business domain when this
kind of disruptive innovation comes
4. Technology is indispensable for business management especially in rapidly

changing situation. Choose right ICT partner for business growth
5. Understanding now technology is tough. Connecting techie friends is the

fastest way to catch up. Join HKUST MBA Tech Club!

HKUST MBA/MSc is top-ranked globally,
but still a young and small business school.
After some years, please come back to Hong Kong

and do your presentation to new students.
Make the HKUST community grow together!

Thank you!
TECHNOLOGIES AND FUNDAMENTALS BEHIND FINTECH
September 13th, 2017 – Fintech Seminar, HKUST Business School
Tomotaka Osumi
Manager, Cloud Services, NTT Communications
Founder, HKUST MBA Tech Club
tomo.osumi@gmail.com

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TECHNOLOGIES AND FUNDAMENTALS

September 13th, 2017 – Fintech Seminar, HKUST Business School

Manager, Cloud Services – NTT Communications

MBA (FT 2014), HKUST Business School

Founder of HKUST MBA Tech Club

SLIDE 2 Fintech Seminar, HKUST Business School - Sep 13 2017

SLIDE 3 Fintech Seminar, HKUST Business School - Sep 13 2017

South China Morning Post, Aug 16, 2017

SLIDE 5 Fintech Seminar, HKUST Business School - Sep 13 2017

South China Morning Post, Aug 11, 2017

SLIDE 6 Fintech Seminar, HKUST Business School - Sep 13 2017

Financial Times, Aug 1, 2017

SLIDE 7 Fintech Seminar, HKUST Business School - Sep 13 2017

1. Fintech industry and trend

2. Key technologies behind Fintech

3. Fintech case study

SLIDE 9 Fintech Seminar, HKUST Business School - Sep 13 2017

Reference: Financial Times, July 1 2013

Ranking Fintech Forward 2016 Top Fintech Unicorns 2016

1 Tata Consultancy Services 1 Ant Financial - Alipay

SLIDE 12 Fintech Seminar, HKUST Business School - Sep 13 2017

Reference: The Global Fintech Report 2016 In Review, CB Insights

SLIDE 13 Fintech Seminar, HKUST Business School - Sep 13 2017

Reference: The Global Fintech Report 2016 In Review, CB Insights

SLIDE 14 Fintech Seminar, HKUST Business School - Sep 13 2017

Reference: JPMorgan Chase Annual Shareholder Letter, 2015

Scenario 1 Digital Banking

Reference: Alessandro Hatami, BANKNXT, October 6, 2015

SLIDE 18 Fintech Seminar, HKUST Business School - Sep 13 2017

Nikke Asian Review, Jan 23, 2017

SLIDE 20 Fintech Seminar, HKUST Business School - Sep 13 2017

1. AGILITY 2. SECURITY 3. RELIABILITY

SLIDE 21 Fintech Seminar, HKUST Business School - Sep 13 2017

BEFORE WITH CLOUD

SLIDE 22 Fintech Seminar, HKUST Business School - Sep 13 2017

196 countries/regions connectivity

SLIDE 23 Fintech Seminar, HKUST Business School - Sep 13 2017

SLIDE 24 Fintech Seminar, HKUST Business School - Sep 13 2017

M-Pin, Next-Gen Online Authentication • Bring your own devices

NG Fintech services with

Other Two-Factor Authentication Providers

SLIDE 25 Fintech Seminar, HKUST Business School - Sep 13 2017

DevOps: Software development and delivery process that emphasizes collaboration

NTT TechnoChross DevOps Implementation

SLIDE 26 Fintech Seminar, HKUST Business School - Sep 13 2017

Machine learning framework

What can I do it change

SLIDE 27 Fintech Seminar, HKUST Business School - Sep 13 2017

Business incubation center (Hong Kong) Business incubation center (Shenzhen)

SLIDE 28 Fintech Seminar, HKUST Business School - Sep 13 2017

• Learn: Expert Lecture - 4pm-6pm, 15th September 2017 LSK Building

• Experience: Shenzhen Trek in October (TBC)

• Network: Alumni Mixer in October (TBC)

Please contact us at: yimanishi@connect.ust.hk

SLIDE 29 Fintech Seminar, HKUST Business School - Sep 13 2017

Reduce Providing competitive rates Increase

SLIDE 32 Fintech Seminar, HKUST Business School - Sep 13 2017

• For borrowers: Provides lending options with lower rate

46.12% for Refinancing

Reference: Lending Club website

SLIDE 34 Fintech Seminar, HKUST Business School - Sep 13 2017

Our matching system uses a powerful algorithm called LendingMatch™,