Welcome to the Fintech Innovation Series. My name is Andrew Wu. I'm a professor of technology and operations and professor of Finance at University of Michigan's Ross School of Business. This series is jointly taught by me and Professor Robert Dittmar. Both of us share a passion for new research in the fintech space and both of us have worked extensively with leading global fintech innovators, ranging from small startups to large conglomerates. We are excited to share these experiences with you and look forward to embarking on an exciting journey where we learn and discover fintech together. In this video, we'll give you a brief overview of what defines the fintech industry its major components and what to expect over the next four courses in the series. So what is fintech? If you ask 10 people this question, you'll likely get 10 different answers and they're all likely to be correct in different aspects. The truth is even if the buzzword fintech is new, technology and finance is not. Think about the prehistorical times where people have to barter with physical goods with one another. In that age, the development of money in the form of gold nuggets and coins which served as a common medium of exchange was an excellent technical innovation. Similarly checks, which ushered in the trend for cashless transactions three centuries ago was also the fintech breakthrough in the age of paper money. Over the last century, we've had countless other innovations, ATM machines, online banking and trading, wire transfers etc, that are continuously evolving the way finance was done. Therefore if you think about it, the financial services industry has always been at the forefront of technological innovation, and it has been constantly quote-unquote, disrupted by new technology. If that's the case, then what is new about this recent fintech boom that have received so much buzz? It turns out that in the past decade, the fintech innovation took a significantly different path from before. The main difference is who's leading the charge. Historically, it has been the financial institutions. The banks, the investment managers the hedge funds. They are the trailblazers in most technological innovations from money to checks to ATM and online trading. This time, however, is by and large the tech companies leading the charge. For the first time, we're seeing tech companies like Google, Amazon, and Facebook, which we wouldn't think of as financial institutions begin to take on core finance functions like payment, lending, and investment. This is partly because of the Big Data boom and the tech companies unparalleled access to consumer data and partly because tech companies are not subject to a strict regulations as financial institutions. Therefore, they are significantly more aggressive in taking on risks in developing new products, new technology, and opening new markets. This has led to a situation where our traditional financial institutions are in danger of being technologically leapfrogged on many fronts by tech companies that have never done finance before. To illustrate the situation, I'd like you to think about a traditional financial institution like a full-service bank. What does a bank do? Obviously, it would hold deposit accounts like checking or savings accounts. It also provides payment and transfer services to move money between these accounts. On the other hand, it would also provide lending services such as personal and business loans and credit cards. It could also have an investment banking division that helps business to raise money from debt and equity markets by issuing bonds and stocks. And moreover, there will be investment advisory services that help people invest these money. Because of this, it might also have a trading department to provide brokerage and settlement services for traders. And finally, there are dedicated private banking and wealth management services available if you're very wealthy and are willing to pay a premium fee. This pretty much sums up what a full-service financial institution does on a daily basis. They all involve capital and money and the core functions of finance is simply moving them around, raising them, and investing them. Now I'm going to decompose these functions and show you that today the traditional financial institution is being threatened on all of these fronts not as a whole but piece by piece by different types of tech companies. For instance, we now have completely branchless data-driven online neobanks that provide deposit accounts at cheaper rates. And the payment space has seen a large number of new entrants ranging from digital wallets like PayPal and Venmo to social media-based ecosystems like Facebook and to decentralize technologies like cryptocurrencies. Similarly, the personal lending market has seen many peer-to-peer online lending platforms such as LendingClub and Prosper and this has spread to the business lending market as well with new platforms operated by Kabbage and even Amazon. Traditional equity fundraising such as IPO has been increasingly diversified with new platforms like crowdfunding and the crypto based initial coin offerings and exchange offerings. On the investment front, human advisors are feeling the heat from robo-advisors, like Wealthfront and Betterment which use artificial intelligence and machine learning to deliver customized investment advice at a low cost. Retail brokerages have also been threatened by low-cost online trading platforms such as Robinhood. And finally personalized wealth and lifestyle management is no longer exclusively to the rich with new consumer analytics companies like Credit Karma and mint that leverage the power of data to compete with financial institutions on low-cost personalized budgeting and credit planning advice. Today's fintech is defined by this piecemeal type of innovation and disruption, and consequently we're going to do find today's fintech market broadly as technological innovations that improve how money and capital are transferred, raised, and invested. And over the next several courses, we'll deep dive into each of these segments. Before we move on, I'd like to quickly correct a common misconception. A lot of people tend to equate the latest fintech boom with the boom in cryptocurrencies, like Bitcoin. Sure, they're an important part of the innovation and many of the decentralized technology have very good business applications. Some of which we'll carefully analyze as part of the series. However, blockchain and crypto are far from being the only part of fintech. Innovations in payment, lending, and investment that do not use decentralized technologies from mobile wallace to supply chain finance to robo-advisors have received significantly more venture funding because they use more proven technologies. At the same time, they hold just as much if not more potential to significantly transform our financial lives in the near future. Therefore, we designed this series to give you the broadest exposure to fintech. And after taking the series you'll be well equipped to discuss and analyze all aspects of the fintech market.
