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What is FinTech - LinkedIn Learning

  • FinTech is emerging and rapidly growing areas like blockchain, robot-advising, AI, online lending and crowdfunding. These can disrupt traditional finance and this leads to increased focus on it.

  • FinTech impacts investment advisory services, trading stocks, blockchain (trade settlements, online marketplace lending, capital/business formation

  • Regulation within FinTech is limited right now as it is built for the old system, were technology is not so much involved. This leads to issues for investor protection, SEC rules built for the old era.

  • As of 2019, it has not lead to an impact but it will in the future (now)

  • Algorithmic/Computer-driven Trading

    • Makes of over 90% of trades on the stock market

    • Human being a stock picker is old and the role for humans is now in designing algorithms to make these algorithmic trades

    • Algorithmic trading can be either market making (attempt to capitalize on the bid-ask spread, high-frequency traders) or data mining (based on patterns and data, looking at stock prices and other data points and capitalizing on them)

  • Blockchain

    • 21st century version of a ledger book.

    • A blockchain is a distributed secure logfile that is protected by a super-secure username and password and it contains a complete record of every transition on the blockchain

    • First popularized as a behind the scenes tool for bitcoin

    • Blockchain underlies in every digital currency. Blockchain can speed up assets transfer

  • Blockchain Mechanics

    • Similar to Wikipedia. People can write entries into a record of information, and a community of users can control how the record of information is amended and updated. Blockchain automated this process to make it faster and simpler

  • What is Bitcoin?

    • The first successful peer-to-peer digital currency

    • Bitcoin comes with a build-in ledger, the blockchain, which records all of the transactions that occur. This is a public ledger of transactions

    • Built-in auditors/accountants called ‘miner's. Mining is to make sure the system is working and no counterfeit is occurring

    • Three Parts of Bitcoin

      • Private key cryptography

      • A distributed network with a shared ledger

      • Auditing of transactions (mining)

  • Features of Bitcoin

    • Deflationary, as the number of users grows the number of bitcoin grows at a slower pace

    • Divisible to 8 decimal places

    • Minimal transaction fees

      • The fees get paid out to the miners, voluntary fees but you pay to ensure your transaction gets reviewed

    • Consensus driven - no central authority

    • Counterfeit resilient

  • Cognitive Tasks Performed by AI

    • Natural language processing, knowledge representation, automated reasoning computer vison and machine learning

  • AI advantages

    • Efficiency, fast, good at solving new problems, good at dealing with information overload and organizing/processing it into knowledge

  • AI disadvantages

    • Costly upfront, slow software development, in 2019 few practical products

  • AI Impact of Industry

    • Chatbots that are AI-powered

    • Intelligent personal investment products

    • CFA exam has added a AI section

    • Companies are spending heavily on AI

  • What is AI?

    • AI is a branch of computer science focused on the automation of intelligent behavior

    • Intelligence is flexible responses rather then mechanical behavior. Having the ability to adapt to ambiguous or contradictory messages

    • It has to be able to assess relative importance of different elements of a situation (for example, quality vs. price)

    • Find similarities between situations despite difference’s which may separate them (find two dogs in two different pictures)

    • Ai should be able to draw distinctions between situations despite similarities

  • What is Robo-Advising?

    • The use of automation and digital techniques to build and manage portfolios of exchange-traded funds (ETFs) and other investments

    • Current capabilities are basic, uses surveys to allocate assets

    • The portfolio gets monitored, rebalanced and reported on

  • Robo-Marketing

    • Fills a void are millennials, a low-cost way to invest in the markets

  • Robo-Advising in the works

    • Creates a survey with a survey to create a portfolio

    • Age, risk-tolerance, international stocks, national stocks, research/knowledge on topic, bonds, small cap vs large stocks, how much to invest and savings to invest in the future

    • Creates a variety of ETFs that are recommended to invest in

    • The parameters that are required by robo-advising needs to set-up by humans and then the robo-advisier can use it to make recommendations

    • AI can be used to watch the market change and then make adjustments to the robo-advising recommendations

      • This allows for automated portfolio rebalancing, reinvesting and watching of the stock market to have the best investments

  • Online investing and lending company’s are a great example of FinTech as they use online money that other people have invested to put into other loans. Everything has tons of data as its mostly automated and focus on transparency

  • The rise of online lending and crowdfunded-based lending

  • Using AI within excel called Ideas

  • Cryptocurrency

    • Act as a medium of exchange

    • No centered agency/government baking

    • No physical form, in digital wallets

    • Nealy impossible to duplicate

    • Created and stored using blockchain

    • Transactions and transfers are anonymous

    • Finite supply, for example Bitcoin will only create 21 billion max and each year it will release few and fewer

  • Cryptocurrency Investing

    • Crypto ETFs may be coming in the future (looks like there is now)

    • Limited investing offers

    • The worth of cryptocurrency can be grey and not have an exact method of determining it. Exchange rate is difficult.

    • Valuing crypto can be done a few ways, based on financial models that can vary based on different approach’s

    • Very risky trades

    • One example of financial valuation models for bitcoin

  • Using a crypto website allows for trade, for example, bitcoin but this if not a trader this can be difficult as we don’t have all day to watch the market. This leads to turning to algorithmic trading

    • A computer program can do the trading for you though AI automation and use a financial model that is we are confident in

  • Blockchain in a Nutshell

    • Shared ledger + consensus to help with auditing + cryptography + shared contract

    • Has shifted to smart contracts (smart legal contracts for example)