9. FinTech

Question 1

Q: How does fintech companies create value?

Answer 1

By reducing financial frictions such as intermediaries.

Question 2

Q: What are the financial frictions that fintechs can reduce?

Answer 2

• Unit costs: It costs less to offer the service (vertical integration, automation, scale)
• Adverse selections: It reduces lending risks (through more data, better modeling)
• Moral hazard and agency conflicts (shirking): It aligns incentives of service providers and consumers.
• Trust: It increases the trust in the system, or altogether eliminate the need for trust.
• Search costs: It easily matches service providers with customers.
• Convenience: It reduces processing time. More tailored financial services.
• Financial inclusion: Fintech can give more people access to financial services.
• Behavioral Biases: It helps us not making mistakes: Nudges/reminders. Automatic savings.

Question 3

Q: What is the national fintech cluster in Norway?

Answer 3

NCE Finance innovation. A non-profit fintech cluster who works to empower the Norwegian Fintech ecosystem

Question 4

Q: What is Visma?

Answer 4

Visma is an IT company selling accounting software for entrepreneurs and companies

Question 5

Q: Provide some examples of technology-based business models in finance

Answer 5

1. Platform-based business models
2. Software as a Service (Saas)
   Subscription-based model where software is delivered over the internet rather than installed on individual computers.
3. Data-driven models:
   Businesses that collect and analyze large amounts of data to provide insights or improve decision-making for customers and other businesses.

Question 6

Q: What is Platform-based business models?

Answer 6

Refers to businesses that facilitate interactions between two or more distinct groups, typically buyers and sellers, through a digital platform.

A platform-based business model refers to businesses that facilitate interactions between different groups of users through a digital platform, enabling transactions and earning fees or commissions for each transaction.

Question 7

Q: What are some examples of platform-based business models?

Answer 7

A: Examples of platform-based business models include Vipps, PayPal, Airbnb, Uber, LendingClub, Kickstarter, Etsy, Amazon, and Alibaba.

Question 8

Q: How can Platform-based business models create value?

Answer 8

By enabling interactions between buyers and sellers, often taking a commission or fee for each transaction.

Question 9

Q: What are the types of Platform-based business models?

Answer 9

Two types of platforms:
1. Two-sided Platforms:
Bring together two distinct groups of users, typically buyers and users.
Examples: Vipps, Paypal, Airbnb, Uber,
2. Marketplaces:
Bring together buyers and sellers of specific goods and services.
Examples: LendingClub, Kickstarter, Etsy, Amazon, Alibaba

Question 10

Q: What are the three types of digital platforms that are expanding in financial services?

Answer 10

a) Fintech entrants: specialized in technology-enabled financial innovation
b) Big tech firms: large technology companies whose primary activity is platform-based digital services
c) Incumbent financial institutions with platform-based business models

Question 11

Q: How do platform-based business models promote financial inclusion?

Answer 11

A: Platform-based business models, including fintech entrants, big tech firms, and incumbent financial institutions, expand access to financial services, particularly in emerging markets, by leveraging technology and offering third-party services like digital payments, credit insurance, and wealth management.

Question 12

Q: How has regulation influenced the growth of fintech?

Answer 12

A: Open banking regulations have allowed customers to share their financial data with authorized third-party providers, enabling more personalized financial services.

Question 13

Q: How does fintech contribute to financial inclusion?

Answer 13

A: Fintech can provide access to financial services for individuals and businesses who were previously underserved or excluded from traditional banking systems.

Question 14

Q: What are the key challenges for platform-based business models?

Answer 14

A: Platform-based business models face challenges related to network effects, trust, safety, and monetization.

Question 15

Q: How can fintech contribute to reducing financial frictions?

Answer 15

A: Fintech can reduce financial frictions by leveraging technology to lower costs, mitigate risks, align incentives, increase trust, and provide more convenient and accessible financial services.

Question 16

Q: How do incumbents respond to the rise of fintech?

Answer 16

A: Incumbent financial institutions are also adopting platform-based models and utilizing big data and automation to offer third-party services, competing with and cooperating with fintech and big tech firms.

Question 17

Q: What has been the impact of the COVID-19 pandemic on the digitalisation of retail financial services?

Answer 17

A: The COVID-19 pandemic has accelerated the trend toward digitalisation of retail financial services.

Question 18

Q: Which two countries stand out for their superior fintech ecosystem performance?

Answer 18

A: The United Kingdom and Sweden are highlighted for their strong fintech ecosystems.

Question 19

Q: Can you provide an example of fintech’s impact on financial inclusion?

Answer 19

A: M-Pesa, a mobile money transfer system introduced in Kenya, has expanded to multiple countries, providing accessible financial services to millions of users.

Question 20

Q: Which region has seen widespread adoption of fintech in mobile payments?

Answer 20

A: Asia

Question 21

Q: Which sector has seen relatively higher fintech adoption in remittances and cross-border payments?

Answer 21

A: Retail banking

Question 22

Q: How does the cost of finance relate to fintech adoption?

Answer 22

Fintech adoption is higher in countries with higher financial service costs.

Question 23

Q: Which age group is more likely to adopt fintech?

Answer 23

Millennials

Question 24

Q: What economic frictions and forces shape market structure in financial services?

Answer 24

A: Information asymmetries, economies of scale and scope.

Question 25

Q: What are the classic economic forces that remain relevant in the digital age?

Answer 25

A: Economies of scale, economies of scope, and network effects.

Question 26

Q: How has digital innovation impacted the production of financial services?

Answer 26

It has alleviated transaction costs and allowed for the disaggregation of financial services.

Question 27

Q: What are the economic frictions that give rise to financial intermediaries?

Answer 27

A: Transaction costs and information asymmetries.

Question 28

Q: What are the two key areas of technology advances that have contributed to technology-based finance?

Answer 28

A: Increased connectivity and low-cost computing.

Question 29

What three types of digital platforms are expanding in financial services?

Answer 29

a) Fintech entrants
b) Big tech firms
c) increasingly, incumbent financial institutions with platformbased business models

Question 30

Q: What are the potential benefits and risks associated with platform-based business models in financial services?

Answer 30

A: Benefits include lower costs and enhanced financial inclusion, while risks include digital monopolies and oligopolies.

Question 31

Q: What are the key characteristics of platform-based markets?

Answer 31

A: Network effects, winner-takes-all dynamics, increasing returns to scale and scope, and potential inefficiencies.

Question 32

Q: What is interoperability, and how does it help mitigate concentration and monopolies in platform markets?

Answer 32

A: Interoperability refers to the ability of users on one platform to interact with users on another platform, ensuring that externalities are available industry-wide and not exclusive to a single firm.

Question 33

Q: What role have mobile money platforms played in increasing financial inclusion in sub-Saharan Africa?

Answer 33

A: Mobile money platforms in sub-Saharan Africa have played a crucial role in increasing access to low-cost payments and financial services through telecommunications networks.

Question 34

Q: How have digital platforms in China, such as Ant Group and Tencent, advanced financial inclusion?

Answer 34

A: Digital platforms in China offer low-cost payments, credit, insurance, and savings products to hundreds of millions of users, leveraging their parent groups’ activities in e-commerce and social media.

Question 35

Q: What impact have platforms had on financial inclusion in India?

Answer 35

A: Platforms in India, supported by public infrastructures like Aadhaar and the Unified Payment Interface (UPI), have significantly increased access to transaction accounts and fintech services.

Question 36

Q: How have platforms contributed to financial inclusion in other Asian countries, such as Indonesia and Thailand?

Answer 36

A: Platforms in countries like Indonesia and Thailand, including ride-hailing apps and incumbent financial institutions, have provided payment and financial services, particularly targeting retail users and offering services to the informal sector.

Question 37

Q: What role have platforms played in reaching the informal sector in Latin America?

Answer 37

A: Platforms in Latin America, such as e-commerce platforms and publicly-run platforms like Billeteria Móvil (BIM) in Peru, have been effective at reaching the informal sector and addressing gaps in financial inclusion.

Question 38

Q: How has the UK utilized platform-based offerings and fintech solutions to improve financial inclusion?

Answer 38

A: The UK has implemented Open Banking to stimulate competition and innovation in financial services.

Question 39

Q: How have incumbent financial institutions adapted their business models to resemble digital platforms?

Answer 39

A: Incumbent financial institutions have embraced a “banking-as-a-service” (BaaS) model, acting as matchmakers between clients and external fintech providers.