The Future of FinTech

Palgrave Studies in

Financial Services

Technology

Integrating Finance and

Technology in Financial Services

Bernardo Nicoletti

The Future

of FinTech

Palgrave Studies in Financial Services Technology

Series Editor

Bernardo Nicoletti

Rome, Italy

The Palgrave Studies in Financial Services Technology series features orig￾inal research from leading and emerging scholars on contemporary issues

and developments in financial services technology. Falling into 4 broad

categories: channels, payments, credit, and governance; topics covered

include payments, mobile payments, trading and foreign transactions,

big data, risk, compliance, and business intelligence to support con￾sumer and commercial financial services. Covering all topics within the

life cycle of financial services, from channels to risk management, from

security to advanced applications, from information systems to automa￾tion, the series also covers the full range of sectors: retail banking, private

banking, corporate banking, custody and brokerage, wholesale banking,

and insurance companies. Titles within the series will be of value to both

academics and those working in the management of financial services.

More information about this series at

http://www.springer.com/series/14627

Bernardo Nicoletti

The Future of

FinTech

Integrating Finance and Technology

in Financial Services

Palgrave Studies in Financial Services Technology

ISBN 978-3-319-51414-7 ISBN 978-3-319-51415-4 (eBook)

DOI 10.1007/978-3-319-51415-4

Library of Congress Control Number: 2017932557

© The Editor(s) (if applicable) and The Author(s) 2017

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The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication

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Bernardo Nicoletti

Rome, Italy

v

This book is the result of the last several years of research on financial

services, where several people are worthy to be acknowledged for their

support, useful comments, and cooperation.

A special mention should be made of Prof. Gustavo Piga, Prof.

Corrado Cerruti, and Prof. Andrea Appoloni at the Universita’ di Tor

Vergata a Roma. Moreover, I acknowledge the support from Dr. Gian

Marco Balletti in collecting and evaluating some basic materials during

his thesis at the same university.

A special thanks also to Aimee Dibbens from Palgrave Macmillan

for her continuous support and encouragement. This series started with

mobile banking, continued with digital insurance, and now analyzes fin￾tech initiatives.

I acknowledge my family, whose constant support and patience made

this book happen.

Bernardo Nicoletti

Acknowledgments

vii

1 Introduction 1

2 Financial Services and Fintech 3

3 Model and Classifications 31

4 Fintech Innovation 81

5 Critical Success Factors 161

6 Responses of Traditional Players 177

7 Regulations 195

8 A Business Model for Insurtech Initiatives 211

9 A Case 251

Contents

viii Contents

10 The Future: Financial Services as Platforms 261

11 Conclusions 275

Glossary 279

References 309

Index 321

ix

ABI Associazione Bancaria Italiana

ACH Automated Clearing House

ADAS Advanced Driver Assistance Systems

AFI Alliance for Financial Inclusion

AI Artificial Intelligence

AML Anti-Money Laundering

API Application Programming Interface

App Application (mostly for mobile)

ATM Automated Teller Machine

B2B Business to Business

B2C Business to Consumer

BaFin Bundesanstalt für Finanzdienstleistungsaufsicht

BCBS Basel Committee on Banking Supervision

BI Business Intelligence

BMC Business Model Canvas

BMI Business Model Innovation

BPM Business Process Management

BTC Bitcoin

C2B Customer to Business

CA Controlling Authority

CB Commerzbank

CBA Commercial Bank of Africa

List of Abbreviations and Acronyms

x List of Abbreviations and Acronyms

CD Compact Disk

CFO Chief Financial Officer

CIB Corporate and Investment Banking

CIO Chief Information Officer

CKM Customer Knowledge Management

CLV Customer Lifetime Value

CPU Central Processing Unit

CRM Customer Relationship Management or Credit Risk

Management

CSR Customer Service Representative

DLT Distributed Ledger Technology (aka Blockchain)

ECB European Central Bank

ECM Enterprise Content Management

ECN Electronic Communication Network

EMV Europay, MasterCard, and VISA

ERP Enterprise Resource Planning

ESA European Space Agency

EU European Union

EY Ernst & Young

FCA Financial Conduct Authority

FINMA (Swiss) Financial Market Supervisory Authority

Fintech Financial Technology

FINTRAC Financial Transactions and Reports Analysis Centre of

Canada

FMA First Mover Advantage

FTE Full-Time Equivalent

FX Foreign Exchange

GPU Graphics Processing Unit

HR Human Resource

GSM General System for Mobile Communication

ICAAP Internal Capital Adequacy Assessment Process

ICR Intelligent Character Recognition

ICT Information and Communications Technology

ID Identification Data

IIN Issuer Identification Number

IMSI International Mobile Subscriber Identity

List of Abbreviations and Acronyms xi

ING ING-Diba

IOU I Owe You

IPO Initial Public Offering

IxD Interaction Design

KBA Knowledge-Based Authentication

KPI Key Performance Indicator

KYC Know Your Customer

LAN Local Area Network

MFI Microfinance Institution

MNO Mobile Network Operator

MVP Minimum Viable Product

NASA National Aeronautics and Space Administration

NFC Near-Field Communication

NIST National Institute of Standards and Technology

NLP Natural Language Processing

OCR Optical Character Recognition

OEM Original Equipment Manufacturer

OTC Over the Counter

P2P Person to Person or Peer to Peer

PC Personal Computer

PCI DSS Payment Card Industry Data Security Standard

PDCA Plan-Do-Check-Act

PED Project Entropia Dollars

PFM Personal Finance Management

PII Personal Identifying Information

POS Point of Sale

PPC Pay per Click

PSE (EU) Payment Services Directive

PwC PricewaterhouseCoopers

ROI Return on Investment

S2S Service to Sale

SDK Software Development Kit

SDM Secure Domain Manager

SEO Search Engine Optimization

SEPA Single European Payment Area

SG&A Selling, General, and Administrative Expenses

xii List of Abbreviations and Acronyms

SIFIs Systematically Important Financial Institutions

SIM Subscriber Identity Module

SMEs Small- and Medium-Sized Enterprises or Subject

Matter Experts

SMS Short Message Service

STP Straight-Through Processing

TAM Technology Acceptance Model

TCO Total Cost of Ownership

TSM Telecommunication Management System

UBI Usage-Based Insurance

UI User Interface

UICC Universal Integrated Circuit Card

UN United Nations.

UPC Universal Product Code

USC Utility Settlement Coin

VC Venture Capital or Virtual Currency

VoC Voice of the Customer

VoIP Voice over Internet Protocol

xiii

Fig. 2.1 The Fintech ecosystem (adapted by the author from EY 2016) 20

Fig. 2.2 Status of Fintech in different regions 24

Fig. 3.1 Fintech specialization share (elaboration from “Fintech 100,

Leading Global Fintech innovators, Report” 2015) 47

Fig. 3.2 Percentage of enablers and disruptors (elaboration

from “Fintech 100, Leading Global Fintech innovators,

Report” 2015) 50

Fig. 3.3 The organization and its elements 54

Fig. 3.4 The V4 business model framework 56

Fig. 3.5 The business model canvas (adapted by the author from

Osterwalder and Pigneur 2010) 60

Fig. 3.6 PayPal’s business model canvas (adapted by the author from

multiple sites) 62

Fig. 3.7 Crowdfunding’s business model canvas (adapted by the author

from multiple sites) 63

Fig. 3.8 Components of an effective marketing plan 71

Fig. 4.1 A model for an integrated innovation strategy (Nicoletti 2016) 87

Fig. 4.2 Services in mobile banking 93

Fig. 4.3 Fintech business model canvas 96

Fig. 4.4 Mobility focus in the business model canvas 97

Fig. 4.5 The objectives of Big Data analytics 104

Fig. 4.6 Kreditech’s self-learning algorithm 119

Fig. 4.7 The V4 business model framework 120

List of Figures

xiv List of Figures

Fig. 4.8 The V4 business model framework for Betterment 121

Fig. 4.9 The V4 business model framework for Kreditech 144

Fig. 4.10 The business model applied to robo-advisors 145

Fig. 4.11 The extended technology acceptance model 153

Fig. 5.1 Evaluation of critical success factors for a fintech ABC 173

Fig. 6.1 Fintech and financial services partnership 178

Fig. 6.2 Structure of fintech initiatives 179

Fig. 8.1 Technology impact on insurance industry 215

Fig. 8.2 Insurtech business model 218

Fig. 8.3 Insurance issues and business model 219

Fig. 8.4 Top insurance issues and business model 221

Fig. 8.5 Partnership components 223

Fig. 8.6 Social media benefits 238

Fig. 8.7 High-level processes of an insurance business 240

Fig. 9.1 Robotica’s business model canvas 253

Fig. 10.1 The 4 Ps: the players in a platform ecosystem 264

xv

Table 2.1 Market size and investments of some regions 22

Table 2.2 Fintech evaluation of some regions 22

Table 3.1 Traditional versus emergent fintech (elaboration of the

author on Ernst & Young (EY) 2014) 49

Table 3.2 Fintech’s impact on customer centricity (PwC 2016) 67

Table 4.1 Innovation classification 82

Table 4.2 Innovation in financial services (adapted from Lopez

et al. 2015) 83

Table 4.3 Most used Fintech services (Ernst & Young 2016) 94

Table 4.4 Characteristics of the three generations of analytics

(adapted from T. Davenport 2013) 111

Table 4.5 Potential applications of blockchain technologies 131

Table 6.1 Characteristics of accelerators and incubators (Cohen

and Hochberg 2014; Hoffman and Radojevich-Kelley 2012;

Miller and Bound 2011; Slaats 2015) 186

Table 6.2 Potential relationships between fintech and traditional

financial institutions 189

Table 8.1 General Big Data analytics guidelines 232

Table 9.1 Robotica and its customer experience 255

List of Tables