Fintech

Question 1

Fintech definition

Answer 1

FinTech is the application of emerging technologies, such as AI, blockchain
Computer programs and other technology used to support or enable banking and financial services

Question 2

Reasons for using fintech innovations

Answer 2

• More attractive rates/fees
• Access to different products and services
• Improved customer Experience
• Greater level of trust
• Cost Efficiency
• Financial Inclusion
• Competitive advantage
• Available 24/7

Question 3

Open banking

Answer 3

• A system that allows third party financial service providers access to consumer banking data through APIs a software intermediary that allows two applications to communicate to each other
• enables innovation, competition, and improved financial services

Question 4

How open banking works

Answer 4

• Banks provide secure API’s for authorised third-party providers (TPPs)
• TPP use data for payments, financial management, and new banking services

Question 5

Open vs traditional banking

Answer 5

Data access:
OB: Shared via API’s
TB: Limited to bank-provided services

Customer control
OB: customers choose providers
TB: bank controlled services

Innovation:
OB: Rapid third party innovation
TB: Slower in house department

Competition:
OB: encourages Fintech growth
TB: Banks dominate financial services

Question 6

Challenges in Fintech

Answer 6

• Regulatory and compliance challenges: Diverse regulations, data privacy laws, cross-border transactions
• Security and Fraud Risk: Cybersecurity threats, data breaches
• Infrastructure Challenges: integration and interoperability
• Financial Inclusion and Accessibility Issues: digital divide, some populations lack access to the internet or mobile banking
• Ethical and Societal Concerns: algorithmic bias and ethical use of AI
  E.g. Revolut

Question 7

Blockchain definition

Answer 7

• a data structure that holds transactional records while ensuring security, transparency, and decentralisation
• Blockchain is the technology that enables the creation of a distributed ledger (ledger is a record of a businesses financial transactions)
• Blockchain permits transactions to be gathered into blocks and allows the resulting ledger to be accessed by different servers

Question 8

Decentralised peers

Answer 8

• Blockchain is a decentralised peer to peer network, where each node has a copy of a ledger

Question 9

What is blockchain?

Answer 9

A system comprised of
- Transactions
- Encryption process
- Immutable ledgers
- Decentralised peers

Question 10

How does a distributed ledger work?

Answer 10

1. Users initiate transactions using their digital signatures
2. Users broadcast their transactions to nodes
3. One or more nodes begin validating each other
4. Nodes aggregate validated transactions into blocks
5. Nodes broadcast blocks to each other
6. Consensus protocol is used
7. Block reflecting ‘true state’ is chain to prior block

(First block is called the genesis block)

Question 11

Why do we need blockchain?

Answer 11

• Resilience: Blockchains are often replicated architecture. The chain is still operated by most nodes in the event of a massive attack against the system
• Time Reduction: In the financial industry, blockchain can play a vital role by allowing the quicker settlement of trade as it does not need a lengthy process of verification, settlement, and clearance because a single version of agreed-upon data of the shared ledger is available between all stakeholders
• Reliability: Blockchain certifies and verifies the identities of the interested parties. This removes double record, reduces rates, and accelerates transactions
• Security: Attacking a transnational database is the bringing down of a specific target. With the help of Distributed Ledger Technology, each party holds a copy of the original chain, so the system remains operative, even if a large number of other nodes fall.
• Transparency: Changes to public blockchains are publicly visible to everyone. This offers greater transparency