MODULE 1
Introduction to FinTech &
Digital Banking
• Course Name: PE-III (FinTech, Banking & Applied Risk
Management)
• Course Code: PEC-AIDS7021
• Module Name: Introduction to FinTech & Digital Banking
• Module Number: 1.0
• Presented By: Jignesh Patel
Motivation: Why FinTech Now?
• Unprecedented Transformation: The financial landscape is rapidly integrating advanced
technological innovations.
• FinTech Defined: Application of digital technologies to deliver financial services and
solutions.
• Ranges from online banking to blockchain and AI.
• Critical Role of AI & Data Science:
• Emphasizes AI/Data Science applications in banking and finance.
• AI/ML are foundational elements driving efficiency, automation, and enhanced
decision-making.
• Strategic Imperative: Traditional financial institutions must adapt or risk obsolescence. •
New entrants (FinTech firms, neobanks) rapidly introduce innovations, pressuring
traditional banks.
• Digital transformation is key to relevance and market position.
Course Objectives & Outcomes
● Course Objective:
○ Introduce fundamental FinTech concepts and their impact on the financial industry. ○
Emphasize AI and data science applications in banking and financial services. ● Module 1
Learning Objectives (L1, L2 Bloom's Taxonomy):
○ Understand the evolution of FinTech, digital banking, and AI applications in finance. ●
Module 1 Learning Outcomes: Upon completion, students will be able to:
○ Define FinTech and identify its sub-sectors (RegTech, InsurTech, WealthTech). ○
Describe the historical evolution of banking (1.0, 2.0, 3.0).
○ Explain core principles, benefits, and challenges of Open Banking.
○ Identify digital payment types and underlying technologies.
○ Articulate the fundamental role and diverse applications of AI/ML in FinTech. ○
Differentiate between traditional and contemporary digital banking models.
Overview of FinTech
● Definition: "Financial Technology" – innovative application of digital technologies to
deliver financial services and solutions.
○ Goes beyond conventional tech; characterized by agile, often unexpected
approaches.
● Key Drivers:
○ Pursuit of new opportunities.
○ Necessity to manage complex operations safely and efficiently.
○ Compliance with rapidly evolving regulatory environments.
● Participants: Startups, established tech companies, traditional financial institutions. ●
"One-to-many" solutions: Designed for broad application, often making existing
processes better, faster, cheaper.
FinTech Categories
● Digital Banks & Neobanks: Online-only institutions (e.g., lower fees, AI-driven
personalization).
● Payment Solutions: Facilitate money transfers (e.g., mobile apps, contactless, QR
codes).
● Personal Finance Management (PFM): Tools for individual finance management (e.g.,
budgeting apps).
● InsurTech: Technology-driven transformation of insurance (e.g., simplified claims, risk
assessment).
● WealthTech: Investment & wealth management services (e.g., automated investing,
robo-advisors).
● Lending & Credit Tech: Alternative lending options (e.g., P2P, microloans, new credit
scoring).
FinTech Categories
● Blockchain & Cryptocurrency: Utilizes blockchain for various applications (e.g., Bitcoin,
Smart Contracts, DeFi).
● RegTech: Regulatory technology aiding compliance (e.g., identity verification, risk
management).
● Trade Finance: Improving international trade financing (e.g., platforms connecting
buyers/sellers).
● Banking Infrastructure & APIs: Backend solutions for financial institutions. 7
Evolution of Banking
Bankin Time
g Era Period
Key Characteristics Key Impact
Innovations/Drivers
business model. N/A - Slower service delivery. - Higher
- Direct interaction with bank susceptibility to human error.
managers. - Less sophisticated fraud.
Banking 1.0 - Lending based on personal - Laid foundation of service and trust.
Pre-1960s - Highly personalized character. - Manual operations.
(1950s). - Debit card pilot
(1966). - ATM (1967). - Increased efficiency &
cost reductions. - Elevated
Banking 2.0 1990s-Pres ent - Consumer demand for customer satisfaction & risk
- Introduction of digital convenience, speed, and management. -
tools. - Computers for - Rapid digital personalization. Accelerated innovation.
record-keeping and transformation. - Online - Boosted efficiency. - Integration of AI, IoT,
Banking 3.0 processing. banking and mobile apps. - - Reduced manual errors. blockchain.
1960s-1980 s Real-time support and - New avenues for fraud. - 24/7 accessibility and
personalized advice. - Introduced digital real-time processing.
- Credit card vulnerabilities.
Open Banking
● Definition: Secure data sharing between banks and authorized third-party providers via Application Programming
Interfaces (APIs).
○ Unlocks new possibilities for innovative products and services.
● Core Principles:
○ Consumer control and data transparency (explicit consent).
○ Robust governance, security protocols, and risk management.
○ Standardized data formats (e.g., JSON) via APIs.
● Benefits:
○ Enhanced Customer Experience (integrated platforms, personalized recommendations).
○ Increased Competition & Innovation.
○ Improved Financial Management (aggregated data).
○ Access to New Services (budgeting tools, loan comparisons).
● Challenges:
○ Data Privacy and Security Concerns.
○ Regulatory Compliance (varying across jurisdictions).
○ Customer Trust and Consent.
○ Cybersecurity Threats.
○ Integration with Existing Legacy Systems.
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Digital Payments
● Definition: Electronic financial transactions conducted over the internet or other electronic
devices, without physical currency.
● Benefits: Enhanced security, greater convenience, increased efficiency.
● Types:
○ Credit/Debit Cards: Electronic transactions via card networks.
○ Mobile Wallets: (e.g., Apple Pay, Google Pay) Store payment credentials for
contactless/online use.
○ Online Banking: Direct transfers and bill payments via bank portals.
○ Peer-to-Peer (P2P) Transfers: Direct money transfers between individuals (e.g., PayPal,
Venmo).
○ Contactless Cards: NFC technology for tap-to-pay.
○ Cryptocurrencies: Decentralized digital currencies (e.g., Bitcoin, Ethereum) for lower fees,
faster cross-border payments.
○ QR Code Payments: Initiated by scanning QR codes.
○ Central Bank Digital Currencies (CBDCs): Digital forms of national currency, issued by
central banks. 10
Digital Payments: Technologies & Real-Time
Payments (RTP)
● Underlying Technologies:
○ NFC (Near Field Communication): Secure, short-range communication for contactless. ○
MST (Magnetic Secure Transmission): Mobile wallets communicate with magnetic stripe
readers.
○ Biometric Authentication: Fingerprint, facial recognition for security.
○ Tokenization: Encrypts sensitive payment data into unique tokens.
○ Encryption: Protects transactions and data integrity.
● Real-Time Payments (RTP):
○ Definition: Transactions initiated, cleared, and settled within seconds, 24/7. ○
Benefits:
■ Speed & Immediate Availability: Funds available instantly.
■ Efficiency: Enhanced data for automatic reconciliation.
■ Fraud Mitigation: AI-driven detection identifies anomalies in real-time.
■ Convenience & Control: 24/7 access for individuals and businesses.
■ Innovation Platform: Modern platform for new product development.
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Role of AI & ML in FinTech
● Foundational Tools: Revolutionizing financial services through efficiency, automation, enhanced
decision-making.
● Key Applications & Impact:
○ Efficiency & Automation: Automate labor-intensive tasks (data entry, document processing). ○
Enhanced Decision-Making: Analyze vast data for patterns, trends, and forecasts.
○ Personalization: Hyper-personalization through customer data analysis (tailored
recommendations, chatbots).
○ Fraud Detection & Prevention: Real-time analysis of transactional patterns, anomaly
detection (supervised/unsupervised learning).
○ Credit Scoring & Risk Assessment: Use alternative data sources for more accurate and
inclusive credit assessments.
○ Algorithmic Trading & Portfolio Management: Predict market movements, execute
high-frequency trades, optimize portfolios.
○ Document Verification & KYC Automation: Intelligent document processing, biometric
authentication for onboarding.
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RegTech (Regulatory Technology)
● Definition: Specialized software assisting financial companies in maintaining compliance with
changing regulations, addressing technology-driven economy challenges, and safeguarding
against online threats.
● Origin: Formally introduced by UK's FCA in 2015.
● Benefits:
○ Improved Efficiency: AI/ML process high volumes of data to keep up with regulations. ○
Reduced Compliance Costs: Automate tasks, reducing need for large expert teams. ○
Enhanced Risk Management: Identify, assess, and manage compliance, financial, and data
risks.
○ Increased Accuracy & Responsiveness: AI identifies subtle patterns, reduces false positives,
adapts to shifting regulations.
● Applications:
○ Regulatory Reporting, Risk Management, Compliance Management.
○ Identity Management & KYC/AML.
○ Transaction Monitoring, Regulatory Intelligence, Data Management.
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InsurTech (Insurance Technology)
● Definition: Leverages advanced technologies to revolutionize the insurance industry, making it more
accessible, efficient, and customer-centric.
● Benefits:
○ Enhanced Operational Efficiency & Cost Savings: Automate claims processing, customer service,
underwriting.
○ Personalized Insurance Solutions: Customized policies using big data and analytics (e.g., telematics). ○
Improved Transparency & Security: Blockchain ensures secure transactions, reduces fraud, automates
claims via smart contracts.
○ Faster Claims Processing: Automation and smart contracts speed up payouts.
○ Better Risk Assessment & Fraud Detection: AI/ML analyze data for accurate risk profiles and fraud
detection.
○ Increased Accessibility & Flexibility: On-demand insurance, parametric insurance.
● Key Technologies:
○ Artificial Intelligence (AI) & Machine Learning (ML).
○ Big Data and Analytics.
○ Blockchain Technology.
○ Telematics & Usage-Based Insurance.
○ Internet of Things (IoT) & Drones 14
Books & References for Further Reading
● Textbooks:
○ Operational Risk Management: A Complete Guide for Banking and Fintech by Philippa X.
Girling.
○ The Money Revolution: The Essential Fintech Handbook... by Sergey Tsabolov.
○ Artificial Intelligence in Finance by Yves Hilpisch.
● Online Resources (Udemy, CFI):
○ Digital Banking - Masterclass & Introduction to Fintech.
○ 2025 - Digital Banking Center of Innovation with AI, Blockchain...
○ Digital Banking Fundamentals (CFI).
○ Introduction to FinTech (CFI).
○ Introduction to InsurTech (CFI).
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Thank You
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