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The Regulation Innovation Tradeoff

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FinTech: Foundations, Payments, and Regulations

University of Pennsylvania

4.7 (268 ratings) | 3.7K Students Enrolled

Course 1 of 4 in the Fintech: Foundations & Applications of Financial Technology Specialization

In this course, you’ll learn the key components of modern-day investment strategies which utilize fintech. Professors Natasha Sarin and Chris Geczy of the Wharton School have designed this course to help you understand the complex structure of payment methods and financial regulations, so you can determine how fintech plays a role in the future of investing. Through analysis of robo-advising and changing demographic forces, you’ll learn how basic elements of trust underlie complex choice architecture in investments and impact investing. You’ll also explore payment methodologies and how fintech is emerging as an entrepreneurial solution to both investments and payment systems. By the end of this course, you’ll be able to identify different financial technologies, and understand the dynamic between the innovations and regulations, and employ best practices in developing a fintech strategy for yourself or your business. No prerequisites are required for this course, although a basic understanding of credit cards and other payment methods is helpful.

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4.7 (268 ratings)

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AA

Jun 30, 2019

My first course in Coursera and it did not disappoint! I recommend this FinTech course to anybody seek a quick yet detailed introduction to the world of FinTech! Thank you

CF

Jul 08, 2019

clear and concise teachings lead to a quick understanding of the material presented. video length was great; never too long. visuals were easy to understand and interpret.

From the lesson

Module 4: Regulation

In this module, you’ll be introduced to the concerns and innovations in financial regulation and focus more closely on the emergence of fintech. By discussing theoretical criticisms of regulation, you’ll gain a better understanding behind balance between regulation and innovation and the tradeoffs that come with the balance. Through analyzing the Great Recession of 2008 and its impact on regulations in the financial industry, you’ll study the emergence of fintech as an entrepreneurial solution for financial businesses. Through identification of fintech and outlining its massive growth, you will evaluate the main benefits and issues within this the emerging field. By the end of this module, you’ll be able to identify how regulations manage innovative approaches, and employ best practices of utilizing fintech in your organization while understanding the global landscape of fintech regulation

Perspectives on Regulation5:40

The Regulation Innovation Tradeoff4:49

The Great Recession6:04

Emergence of FinTech5:54

FinTech Growth & Benefits4:55

Issues with FinTech8:57

Issues Regulating FinTech7:50

US FinTech Regulation4:20

Global FinTech Regulation8:57

RegTech and Looking Forward4:59

Taught By

Christopher Geczy
Adjunct Professor of Finance
Natasha Sarin
Assistant Professor of Law

Transcript

In general, I like to think about what I call the regulation-innovation trade-off. So the key balancing act will have to have in our minds is that innovation is good and financial technology has the power to serve consumers well, and make the markets function more efficiently but on the other hand, we worry that as we've regulated the financial sector more aggressively, there's a tendency to move traditional activity outside of the more regulated spaces and into some of these less regulated environments, and so just to be quite clear about this, I think that regulation can ensure consumer safety and can reduce the risks substantially of market crises like the recession, and overall societal pain that ensues from these black swan events. On the other hand the regulation does hinder the growth and innovation by creating bureaucratic hurdles to innovation, by creating bureaucratic hurdles to advance. It may also as George Stigler was worried, benefit incumbent firms and tend to transfer risk in the manner we've described from regulated areas of the market to less regulated shadow sectors. Innovation helps companies create new products in a safe and responsible way that is going to best serve consumers and allow them to profit from this substantial technological advances that have occurred in recent eras. On the other hand though, there are real risks of innovation. The fact that consumers aren't particularly aware of the risks that emerge in these markets, things like security and cyber crime risks that we'll get a chance to discuss here. It's interesting from a conceptual perspective before we dig deeply into financial technology regulation specifically to think about how we as consumers in these markets tend to view the desirability or the usefulness of regulation broadly. This Gallup poll illustrates that concerns about regulation have actually risen since the early 1990s about overly burden in some regulation with consumers voicing distrust in government's ability to best police these markets as well as concerns that bureaucratic red tape can hinder significant advancements that occur in other countries with less stringent regulatory frameworks. What's interesting and important for us to keep in mind is that, regulation involves the restriction of industries ability to engage in certain practices to hopefully best serve consumers in these markets. Remember that this involves two different classes of consumers. On the one side consumers who are consuming particular products, on the other side those who work in the industries that are being regulated who in essence are also consumers. Regulation is meant to help consumers by protecting them against risks that emerge in different markets, but regulation can also ill-serve consumers by making certain markets less competitive and providing incumbents or tremendous advantage in those faces. This was of course the concern if George Stigler and one that manifests itself today with respect to for example occupational licensing in the United States. The percentage of occupations that require a state license in order to participate in that occupation have increased from less than five percent of workers in the early 1950s to a quarter of all workers in 2015. Jobs that require such licenses range from jobs you would expect things like physicians and lawyers, but also very intense licensing requirements for occupations like barbers and manicurists and the expectation that they re-license themselves with tremendous regularity in order to remain licensed practitioners in these particular occupations. The existence of these licensing requirements does many things from their perspective of consumers. On the one hand, it makes these occupations more expensive to work in and as a result makes the prices that consumers pay for their manicures, and for their haircuts higher but it also hurts individuals who work in these occupations because it reduces worker mobility and tends to increase inequality and provides a stark barrier to entry for individuals who seek to participate in these particular industries as a way for career advancement.

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