UNIT I

FINANCIAL TECHNOLOGY
 DIGITAL FINANCE
MEANING:-

Digital finance is the delivery of traditional financial services digitally, through devices such as computers, tablets and
smartphones. Digital finance has the potential to make financial services accessible to underserved populations in areas that
lacked physical infrastructure for these services.

TRANSFORMATION:-
DIGITAL TRANSFORMATION TRENDS IN FINANCIAL SERVICES:-
•Enhance Customer Experience with AI and ML - The use of AL & ML enables the automation of low-value repetitive processes and
customer queries. It helps to free up IT staff to take on more complex and high-value processes and projects. AI-technology plays a vital
role in identifying and predicting fraud possibilities. It supports financial firms to fulfill regulatory and compliance changes effectively.
Also, it helps decode customer behavior and reveal interesting observations. For example – Erica, the virtual assistant from Bank of
America, has already helped over 6 million users and processed over 40 million requests.
•Digital Innovation With Big Data - Data is everywhere. The financial services sector is already beginning to realize Big Data’s potential.
As it gets smarter and faster, banks are thinking up new ways to market their services and use data to facilitate more personalized
experiences for their customers. One of the most crucial ways big banks will leverage the hordes of consumer data they have is to use it to
train ML algorithms to mechanize their mundane processes – saving IT staff hours of work.
•Explore Newer Business Opportunities With Cloud Banking - Finance organizations are increasingly adopting the cloud as their route
to digital reinvention. Cloud enables IT Managers with a massive reduction in costs across both hardware and IT operations
administration. Further, cloud migration helps save around 15% on all IT spending, with small to medium-sized businesses at times
saving up to even 36%.
•Mobile Banking - Digital banking allows customers the convenience of depositing checks, transfer money, pay bills, check transactions,
and apply for loans through mobile devices. More and more customers prefer online banking as it allows 24/7 access, enhanced security
and ease of use. Mobile banking is gaining traction in financial institutions and is expected to grow in the coming years.
•Blockchain - It is an emerging trend that is gaining momentum gradually and will play a significant role in digital payment solutions. It
applies to various operations such as digital payment, loan processing, investment management, cross-border transactions and capital
markets. It enables the prevention of fraudulent activities, provides enhanced transparency, increases transaction speed & more.
FIN TECH EVOLUTION:-
1. Fintech 1.0 (1886-1967) is about infrastructure - first time rapid transmission of financial
information across borders. First transatlantic cable (1866) and Fedwire in the USA (1918).
2. Fintech 2.0 (1967-2008) is about banks - from analog to digital. By the beginning of the 21st
century, banks’ internal processes, interactions with outsiders and retail customers had
become fully digitized.
3. Fintech 3.0 (2008-2014) is about start-ups - general public developed a distrust of the traditional
banking system. Smartphone has also become the primary means by which people access the
internet and use different financial services. 2011 saw the introduction of Google Wallet, followed
by Apple pay in 2014.
4. Fintech 3.5 (2014-2017) is about globalization - Fintech 3.5 signals a move away from the western
dominated financial world and contemplates the expansion in digital banking around the
globe, with improvements in fintech technology.
5. Fintech 4.0 (2018-today) is about disruptive technologies - Blockchain technologies and open
banking are continuing to drive the innovation of the future of financial services. Another major
event in this period is the new wave of integrated payment providers. And lately, mainstream
use cases for NFTs.
BANK STARTUP AND EMERGING MARKET :-
COLLABORATION IS THE KEY FOR BANKS AND FINTECH STARTUPS:-

 Improving customer loyalty — Without a tech-enabled experience, it is challenging to provide

convenience to the customer. When banks fail to innovate, they compromise with the services they
offer. This, in turn, negatively impacts the loyalty of the customer.
 Resource optimization — Without efficiency in operations, it is difficult to optimize resource usage.
Both time and money are assets to any financial organization and a lack of technology hampers a
bank’s ability to optimize its resources.
 Personalization — Without data and analytics, personalization is hard to achieve. Therefore, banks face
the constant challenge of learning about their customers’ varied interests and behavior when they don’t
leverage technology.
 Transparency — Trust and transparency get lost under piles of paper forms and applications. Therefore,
banks that don’t opt for digital banking, fail to achieve process transparency and compromise with both
employees and customers on the trust front.
 Omni-channel — When customers want to make fewer visits to the branch, it is critical that their
interactions with the bank be seamless across other channels. Digital banking can create
an omnichannel experience through social media, website and mobile app platforms.
OPPORTUNITIES FOR BANKS AND FINTECH COMPANIES:-
According to a survey by PwC [1], 82 percent of insurers, asset managers, and
banks plan to increase the number of collaborations they have with fintech startups over
the next three to five years. And we see various ongoing acceptance from banks to
collaborate with new innovation offered by fintech startup players.
Taking example from our own journey, presenting here case in point, Signzy, a platform
that helps financial institutions:
 Onboard customers through a seamless process that reduces hassle and friction.
 Scale faster with an AI and ML-based regulatory engine.
 Reduce costs.
 Cut turnaround time.
 Use advanced cryptography to create robust security and data protection
infrastructure.
 Leverage a range of white-labeled solutions to drive faster digital transformation.
Here are a few challenges Signzy’s fintech solutions help banks solve:
 KYC — Banks need their customers to fill out KYC forms with their details. Traditionally, the process used to be paper-
based. This meant that any mistake in one form would compel customers to start all over again. Signzy enables bank-grade
digital KYC in real-time. An API matches the biometrics of the customer, checks the data in government records, and warns
the user of potential document forgery as the customer fills in details.
 Background check — Traditionally, the bank staff usually gather all identity documents from each customer and manually
does a background check of the customer information. Signzy offers a simple and digital way to accomplish this.
Algorithmic Risk Intelligence allows banks to do a holistic background check, discovering any court cases and legal lists,
fetching anti-money laundering related data, checking the UN CFT List and NIA Most Wanted list.
 Contracts — Signzy is replacing physical contracts with digital ones. These come with video and voice verification,
blockchain implementation, biometrics, and high performance. Smart contracts are the way to go.
 SME Onboarding — Merchant onboarding is a seamless task with Signzy’s offering that helps clients cut down onboarding
time from 2 weeks to a few hours. Features include a mobile link with in-built regulatory rules, real-time document
verification, Aadhar-backed contract signing, and AML background check.
 Transaction Banking with Corporates — Signzy’s offerings can help banks automate complex regulatory procedures with
AI and robotics to significantly reduce TAT and enhance the customer experience. Comprehensive risk and regulatory
checks can help banks mitigate risk in dealing with large enterprises on both liability and asset products.
 Insurance — The insurance process can be simplified and digitized with Signzy’s individual onboarding system. It simplifies
the onboarding journey using advanced biometrics and fraud detection capabilities reducing risk and enhancing user
experience.
 Here are top three things both sides must consider before finalizing a proposed partnership:
 Consider any cultural gap — Make sure that the cultural match is not too challenging. There must be a
willingness to adapt by both sides in a partnership.
 Understand challenges — Collaboration with fintech startups can help financial institutions alleviate
the major challenges they face.
 Leverage data and innovation — The massive data that financial institutions have by their side is by
far their most underused and critical asset. Fintech startups should leverage this data and innovate
around it.

WHAT IS REGULATION IN FINTECH?

Do fintechs need to be regulated? Any institution which is involved in financial
activities must comply with various regulations, and this certainly applies to the fintech
industry. Simple as that. Without regulation, it would be difficult (if not impossible) for
fintechs to operate widely in the financial services sector.
FINTECH REGULATIONS:-
Any institution which is involved in financial activities must comply with various
regulations, and this certainly applies to the fintech industry. Simple as that. Without
regulation, it would be difficult (if not impossible) for fintechs to operate widely in the
financial services sector.
 UNIT III
DIGITAL TRANSACTION
 DIGITAL FINANCIAL SERVICES
MEANING:-
Digital financial services (DFS) comprise a broad range of financial services
accessed and delivered through digital channels, including payments, credit, savings,
remittances and insurance. It also includes mobile financial services. A platform for
policymakers to discuss regulatory issues relating to digital financial services, including
mobile financial services, branchless banking, electronic money and digital payment
solutions.
DEFINITION:-
“Digital financial services contributed to increasing financial inclusion of women,
but in some countries, it has been disproportional. Even though access to finance for
women is rising, the gender gap is still persistent” (Dr. Alfred Hannig, Executive Director,
AFI).
DIGITAL PAYMENT REGULATIONS IN INDIA: -
Reserve Bank of India and National Payments Corporation of India
Payment and Settlement Systems Act, 2007
Ministry of Electronics and Information Technology
Pradhan Mantri Jan Dhan Yojana
Security and Privacy pertaining to digital payments in India
Requirements and Compliance Guidelines for Merchants

Trends and Future Outlook

TYPES OF DIGITAL PAYMENT:-
 Banking cards
 Point of sale (PoS)
 Internet banking
 USSD (Unstructured Supplementary Service Data)
 UPI (Unified Payment Interface )
 Mobile banking
 AEPS (Aadhaar Enabled Payment System)
 Mobile wallets
CRYPTO CURRENCY – Meaning and Definition
Cryptocurrency, sometimes called crypto-currency or crypto, is any form of currency that
exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don't
have a central issuing or regulating authority, instead using a decentralized system to record
transactions and issue new units.
WHAT IS CRYPTOCURRENCY?
Cryptocurrency is a digital payment system that doesn't rely on banks to verify
transactions.
It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments.
HOW DOES CRYPTOCURRENCY WORK?

Cryptocurrencies run on a distributed public ledger called blockchain, a record of all

transactions updated and held by currency holders.

Units of cryptocurrency are created through a process called mining, which involves using
computer power to solve complicated mathematical problems that generate coins. Users can also
buy the currencies from brokers, then store and spend them using cryptographic wallets.
If you own cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to
move a record or a unit of measure from one person to another without a trusted third party.

Although Bitcoin has been around since 2009, cryptocurrencies and applications of blockchain
technology are still emerging in financial terms, and more uses are expected in the future.
Transactions including bonds, stocks, and other financial assets could eventually be traded using the
technology
How to buy cryptocurrency?
Step 1: Choosing a platform - The first step is deciding which platform to use. Generally, you
can choose between a traditional broker or dedicated cryptocurrency exchange

Step 2: Funding your account

Step 3: Placing an order

There are also other ways to invest in crypto - Bitcoin trusts, Bitcoin mutual funds,
Blockchain stocks or ETFs.
How to store cryptocurrency?

 Hot wallet storage: "hot wallets" refer to crypto storage that uses online software to protect the
private keys to your assets.

 Cold wallet storage: Unlike hot wallets, cold wallets (also known as hardware wallets) rely on
offline electronic devices to securely store your private keys.

What can you buy with cryptocurrency?

When it was first launched, Bitcoin was intended to be a medium for daily transactions, making it
possible to buy everything from a cup of coffee to a computer or even big-ticket items like real estate.
Technology and e-commerce sites: newegg.com, AT&T, and Microsoft

Luxury goods: Rolex, Patek Philippe

Cars: mass-market brands to high-end luxury dealers

Insurance: Swiss insurer

AXA announced that it had begun accepting Bitcoin as a mode of payment
What is blockchain technology?

Blockchain technology is an advanced database mechanism that allows transparent information

sharing within a business network. A blockchain database stores data in blocks that are linked
together in a chain.
How does blockchain work?

Step 1 – Record the transaction

Step 2 – Gain consensus

Step 3 – Link the blocks

Step 4 – Share the ledger

What are the types of blockchain networks?

Public blockchain networks

Private blockchain networks

Hybrid blockchain networks

Consortium blockchain networks

 UNIT IV
REG TECH REGULATION
REGTECH – DEFINITION:
The term RegTech was first coined by the UK’s Financial Conduct Authority(FCA) in 2015 who called it:
“A subset of fintech that focuses on technologies that may facilitate the delivery of regulatory requirements more
efficiently and effectively than existing capabilities.” In simple terms it refers to any technology that ensures
companies comply with their regulatory requirements. RegTech is the management of regulatory processes within
the financial industry through technology. The main functions of regtech include regulatory monitoring, reporting,
and compliance.
RegTech (regulatory technology) is a class of software applications for managing regulatory compliance.
Companies invest in RegTech as a way to save time and money, allowing resources that were once devoted to
regulatory compliance to be diverted elsewhere, once RegTech takes over those functionalities. RegTech tends to
be cloud-based and with that comes the following advantages, according to a 2016 Deloitte report, “RegTech is
the new FinTech.”
• Cost
• Flexibility
• Performance / Scalability
• Security
Areas where RegTech can prove valuable include identity management, risk management and security.
According to Deloitte, other beneficial characteristics of RegTech include:
• Agility – "Cluttered and intertwined data sets can be de-coupled and organized through ETL (Extract,
Transfer Load) technologies."
• Speed – "Reports can be configured and generated quickly."
• Integration – "Short timeframes to get solution up and running."
• Analytics – "RegTech uses analytic tools to intelligently mine existing “big data” data sets and unlock
their true potential e.g. using the same data for multiple purposes.

REG TECH CHALLENGES:

• Navigating inconsistent regulation: One massive problem is the complexity of the regulations
themselves. Not only is there divergence between regulators in different countries, but conflicts can also
emerge between regulators in the same jurisdiction, for instance, the SEC and the CFTC. Add a continual
flow of new rules and the problems quickly compound.
Reg Tech Startups:
https://www.startus-insights.com/innovators-guide/5-top-regtech-startups-impacting-the-financial-services-in
dustry/
• Handling the quantity, complexity, and speed of information: We live in the age of data, with
volumes increasing at an unrelenting pace. In addition, regulation often requires the combination
of disparate data sets so that the pace of data creation, as well as the demands of regulatory
reporting deadlines, magnify the need for speed.
• Extracting insights from data: Managing lots of data is one thing, but generating insights from
that data is quite another. Too often, existing data repositories are siloed and/or incompatible with
other pools of information, making it difficult to extract meaningful output. At a minimum, insights
can be constrained and slowed because too much time and effort is spent on managing inputs
rather than maximizing output.
• Adopting new practices and technologies: Adopting new RegTech solutions isn’t simply doing
more of the same. It requires a fundamental change to nearly all aspects of business processes
and procedures, including both development and operations.
REGTECH ECOSYSTEM:
A regtech ecosystem consists of a group of companies that use computing technology, offer SaaS to help
businesses comply with regulations efficiently and lower sumptuously.
The RegTech ecosystem has been steadily expanding since the financial crisis of 2007-2008. According
to the latest version of the RegTech Universe by Deloitte published in October 2018, the number of vendors in the
industry is 263. These companies are classified by five niches, including:
– Regulatory reporting;
– Risk management;
– Identity management;
– Compliance support;
– Transaction monitoring.
REGULATORY BODY USE OF AI IN SMART REGULATION AND FRAUD DETECTION:
AI systems help make compliance processes more efficient and effective for financial institutions.
Automation can reduce problems like human error and regulatory breaches. Artificial Intelligence in Regulatory
Affairs are AI in Labelling, AI in Regulatory Publishing, AI in Regulatory Submissions.
AI FOR FRAUD DETECTION:
Securities and Exchanges Commission: Its Corporate Issuer Risk Assessment (CIRA) detects
potential accounting and financial fraud, while the Advanced Relational Trading Enforcement Metrics
Investigation System (ARTEMIS) and Abnormal Trading and Link Analysis System (ATLAS) rely upon algorithms
that detect possible insider-trading.
Internal Revenue Service: The IRS has a modernization plan for “procuring software that completes
laborious tasks in seconds through automation and artificial intelligence, eliminating error-prone manual work
and increasing speed and accuracy.”
Centers for Medicare and Medicaid Services: The agency has a Fraud Prevention Service (FPS)
algorithm that analyzes claims data to assess fraud before and/or after payments are made. It also identifies
providers with suspicious billing submissions in order to generate investigatory tips.
Department of the Treasury: For years, the department’s Financial Crimes Enforcement Network AI
System (FAIS) has examined suspicious money-laundering activities. The program has generated a number of
investigations and recouped money from a large amount of fraudulent activities.
REGULATORY SANDBOX:
Regulatory sandboxes enable in a real-life environment the testing of innovative technologies, products, services
or approaches, which are not fully compliant with the existing legal and regulatory framework.
The Reserve Bank of India (RBI) set up an inter-regulatory Working Group (WG) in July 2016 to look into and
report on the granular aspects of FinTech and its implications so as to review the regulatory framework and respond to the
dynamics of the rapidly evolving FinTech scenario. The report of the WG was released on February 08, 2018 for public
comments. One of the key recommendations of the WG was to introduce an appropriate framework for a regulatory
sandbox (RS) within a well-defined space and duration where the financial sector regulator will provide the requisite
regulatory guidance, so as to increase efficiency, manage risks and create new opportunities for consumers.
A regulatory sandbox (RS) usually refers to live testing of new products or services in a controlled/test regulatory
environment for which regulators may (or may not) permit certain regulatory relaxations for the limited purpose of the
testing. The RS allows the regulator, the innovators, the financial service providers (as potential deployers of the
technology) and the customers (as final users) to conduct field tests to collect evidence on the benefits and risks of new
financial innovations, while carefully monitoring and containing their risks. It can provide a structured avenue for the
regulator to engage with the ecosystem and to develop innovation-enabling or innovation-responsive regulations that
facilitate delivery of relevant, low-cost financial products. The RS is potentially an important tool which enables more
dynamic, evidence-based regulatory environments which learn from, and evolve with, emerging technologies.
Regulatory Sandbox: Benefits
The setting up of an RS can bring several benefits, some of which are significant and are delineated below:
First and foremost, the RS fosters ‘learning by doing’ on all sides. Regulators obtain first-hand empirical
evidence on the benefits and risks of emerging technologies and their implications, enabling them to take a
considered view on the regulatory changes or new regulations that may be needed to support useful innovation,
while containing the attendant risks. Incumbent financial service providers, including banks, also improve their
understanding of how new financial technologies might work, which helps them to appropriately integrate such
new technologies with their business plans. Innovators and FinTech companies can improve their understanding
of regulations that govern their offerings and shape their products accordingly. Finally, feedback from customers,
as end users, educates both the regulator and the innovator as to what costs and benefits might accrue to
customers from these innovations.
Second, users of an RS can test the product’s viability without the need for a larger and more expensive
roll-out. If the product appears to have the potential to be successful, the product might then be authorized and
brought to the broader market more quickly. If any concerns arise, during the sandbox period, appropriate
modifications can be made before the product is launched in the broader market.
Third, FinTechs provide solutions that can further financial inclusion in a significant way. The RS can go a long
way in not only improving the pace of innovation and technology absorption but also in financial inclusion and
in improving financial reach. Areas that can potentially get a thrust from the RS include microfinance,
innovative small savings and micro-insurance products, remittances, mobile banking and other digital
payments.
Fourth, by providing a structured and institutionalized environment for evidence-based regulatory
decision-making, the dependence of the regulator on industry/stakeholder consultations only is
correspondingly reduced.
Fifth, the RS could lead to better outcomes for consumers through an increased range of products
and services, reduced costs and improved access to financial services.
SMART REGULATION:
Principle 1. Prefer policy mixes incorporating instrument and institutional combinations
Principle 2. Prefer less interventionist measures
Principle 3. Escalate up an instrument pyramid to the extent necessary to achieve policy goals
Principle 4. Empower participants which are in the best position to act as surrogate regulators
Principle 5. Maximise opportunities for win/win outcomes
REDESIGNING BETTER FINANCIAL INFRASTRUCTURE:
1. Customer experience
2. Innovation capacity

3. Brand reputation and cyber security

4. Supply chain optimization
5. Internal/external collaboration
6. Strategic decision making
7. Operational efficiency

8. Talent management
 UNIT V
DATA ANALYTICS IN
FINANCE
HISTORY OF DATA REGULATION:

https://blog.cloudhq.net/data-privacy-day-a-brief-history-of-gdpr/
DATA IN FINANCIAL SERVICES:
Data analytics is a practice that helps professionals make sense of raw data for the
betterment of an organization.
1. Data analytics enables finance executives to turn structured or unstructured data into
insights that promote better decision making.
2. Data analytics helps finance teams gather the information needed to gain a clear view
of key performance indicators (KPIs). Examples include revenue generated, net income, payroll
costs, etc.
3. Data analytics allows finance teams to scrutinize and comprehend vital metrics, and
detect fraud in revenue turnover.
Finance data analysts often are knowledgeable of and proficient in skills related to the following topics:

•Data mining •Microsoft Excel

•Financial analytics •Algorithms and algorithmic trading
•Understanding business models •Python
•Financial forecasting •Automation
•Creating financial models •Data science
•Risk management •Business intelligence
•Big data analytics •Machine learning
•Advanced analytics •Artificial intelligence
•Data management •Real-time data flows
•Predictive analytics
APPLICATIONS OF DATA ANALYSIS IN FINANCE

https://data-flair.training/blogs/data-science-in-finance/
METHODS OF DATA PROTECTION:
1. Encryption
2. Backup and Recovery
3. Access Control
4. Network Security

5. Physical Security
GDPR:
GDPR stands for General Data Protection Legislation. It is a European Union (EU) law that came into
effect on 25th May 2018. GDPR governs the way in which we can use, process, and store personal data
(information about an identifiable, living person). It applies to all organisations within the EU, as well as those
supplying goods or services to the EU or monitoring EU citizens. Therefore it is essential for businesses and
organisations to understand explicitly what GDPR means. It is the legislative force established to protect the
fundamental rights of data subjects whose personal information and sensitive data is stored in organisations.
GDPR COMPLIANCE:
1. While the GDPR is mandated by the EU, it affects every country
2. GDPR requirements apply to most kinds of personal data
3. GDPR posits that users have 8 basic rights regarding personal data and data privacy
4. To avoid non-compliance, designate a representative physically located in the European Union
5. Ignoring or evading GDPR compliance can cause hefty penalties
6. When collecting personal data, your company must switch from “opt out” mode to “opt in” mode
7. You can’t dodge GDPR requirements by hiding behind legalese
 8. Under GDPR, time limits are set for breach notifications
9. Under GDPR, your organization is obligated to respond to a data subject’s request about their personal
data
10. Consider hiring a data protection officer to manage GDPR requirements
11. Cloud-based storage is not exempt from GDPR
12. Under GDPR, human rights are prioritized over user experience
GDPR PERSONAL POLICY:
A GDPR Privacy Policy is the policy that describes your policies on user data collection and usage in
accordance with the GDPR requirements. A GDPR Privacy Policy is sometimes called a GDPR Privacy Statement
or a GDPR Privacy Notice. A Privacy Policy is mandatory under many privacy laws. And under the GDPR, it's one
of the most important documents your company needs to have. It's the only way to demonstrate to your
customers, and to the authorities, that you take data protection seriously.
GDPR contains six principles by which all personal data must be processed. They are:
1. Lawfulness, fairness, and transparency: Obey the law, only process personal data in a way that people
would reasonably expect, and always be open about your data protection practices.
 2. Purpose limitation: You must normally only process personal data for the specific reason
you collected it and nothing else.
3. Data minimization: don't process any more data than you need.
4. Accuracy: Make sure that any personal data you hold is adequate and accurate.
5. Storage limitation: Don't store personal data for longer than you need to.
6. Integrity and confidentiality: Always process personal data securely.
The legal bases for processing a person's personal data are:
1. Consent: You have earned their permission in a GDPR-compliant way
2. Contract: You need to process their personal data to fulfill a contract
3. Legal obligation: You'd be breaking the law if you didn't process their personal data
4. Vital interests: Their life (or someone else's life) depends on you processing their personal data
5. Public task: You need to process their personal data to carry out a task that's in the public interest
6. Legitimate interests: Processing their personal data is in your interests, and you've carried out a
Legitimate Interests Assessment