FinTech For Dummies

Steven O'Hanlon, president and CEO of Numerix, LLC and was 2016's FinTech Person of the Year. Susanne Chishti is the CEO of FINTECH Circle, the leading global FinTech community focused on FinTech investments and corporate innovation strategies and courses.

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go from Here 3

Part 1: Getting to Know Fintech 5

Chapter 1: Navigating the FinTech Landscape 7

What Is FinTech, Anyway? 8

Analyzing FinTech’s Dimensions 10

Understanding What Has Changed in FinTech 13

Highlighting the Size of Global FinTech 15

Discovering a Few Important FinTech Terms 18

Chapter 2: Understanding What’s Disrupting the Financial Industry (and Why) 21

Providing Trust and Value 22

Trust 22

Value 23

Weighing Wall Street against Silicon Valley: Where Disruptors Live 25

Examining the Role of BigTech 28

BigTech and payment platforms 28

BigTech partnership opportunities 29

How BigTech can help utilize data 29

Barriers to greater BigTech participation 30

Understanding Where the Disruptions are Happening 32

Banks 33

Asset managers 34

Insurance 34

Regulation and legal work 35

Payments 36

Looking for the Opportunities 36

Partnership opportunities 36

Exploiting digitalization with AI 37

Enhancing data portability 37

Chapter 3: The Role of Regulation in FinTech 39

Supervising FinTech 40

Understanding that location matters 40

Recognizing that more regulations are coming 42

Leveling the playing field 42

Examining Vendor Risk Issues 44

Introducing the Regulators 45

The United States of America 45

The United Kingdom and Europe 47

Investigating Regulatory Changes 51

Payment Services Directives 51

The General Data Protection Regulation 52

Highlighting RegTech Opportunities 55

Part 2: Learning the Technology 57

Chapter 4: Defining the Tech Underpinning FinTech 59

Finding a Fix in FinTech 60

What’s the problem? 60

Why FinTech now? 61

Creating API Strategies 62

Understanding the concept 62

Looking at API benefits 63

Developing an API strategy 64

Including REST and RAML 65

Trying tips for API success 66

Reviewing APIs and security vulnerabilities 66

Understanding Event-Driven Software 67

Testing and implementation 69

Language support 70

Building on Agile: Microservices and More 71

Waterfall development 71

Agile design 73

Microservices 74

Bundling Efficiencies: Batch Processing 80

Improving Data Management 81

Distinguishing the types of data 81

Validating, enhancing, and cleansing data 83

Making enterprise data management more efficient 83

Working with CPUs and GPUs 85

Comparing CPUs and GPUs 85

Planning for success 86

Estimating the potential improvement 87

Choosing a Programming Language 88

Python 89

Julia 91

R 92

Chapter 5: Confronting the Compute Conundrum 93

Determining Compute Requirements 93

In-memory computing 94

Virtualization 95

Making Sense of DApps 95

Comparing DApps to traditional applications 96

Understanding blockchain 99

Knowing where to find DApps 100

Connecting DApps, Artificial Intelligence, and FinTech 102

Looking at permissioned blockchain 103

Understanding Quantum Computing 104

How quantum computing works 105

The drawbacks of quantum computing 106

How quantum computing fits into FinTech 107

Chapter 6: Calling Up the Cloud 109

Getting to Know the Cloud 110

Looking at the cloud’s key traits 111

Checking out the benefits of the cloud environment 111

Introducing types of cloud services 112

Choosing between private and public clouds 117

Cloud bursting 120

Developing an Optimal Cloud Strategy 121

Reviewing data security and encryption 121

Surveying data states 124

Considering cloud scalability 125

Understanding cloud-based virtualization 126

Using self-service provisioning 127

Monitoring performance 128

Evaluating potential security risk on the cloud 129

Understanding Privacy Compliance and Government

Requirements 131

Data protection laws 132

Data localization laws 132

Data sovereignty laws 133

Access to information laws 133

Seeing How FinTech Helps with Cloud Strategies 133

Chapter 7: Understanding Blockchain beyond Bitcoin 135

Understanding the Basics of Blockchain 136

Mining and consensus 137

Smart contracts and DApps 138

Blockchain network types 139

Discovering How Blockchain Technology Works 140

Decentralization 141

Security 142

Transparency 146

Looking at Blockchain’s Role in FinTech 147

Chapter 8: Acclimating to the App Mentality 151

Introducing Types of FinTech Apps 152

Surveying the FinTech App Landscape 153

Digital banking 153

Wealth management 153

Payments and peer-to-peer money transfer 154

Lending 154

Looking at the Nonretail Side of FinTech Apps 155

RegTech 155

Capital markets trading 156

Building a GUI Framework 157

Introducing the GUI 158

Getting the GUI right 159

Establishing the Requirements Needed in the Development of an App 160

Chapter 9: Breaking Down BI Tools 163

Taking a Strategic Approach to BI 163

Exploring BI Tools 165

Online analytical processing 165

Querying and reporting 167

Data mining 167

Data visualization 168

Business activity monitoring 169

Data warehousing 170

Digital dashboards 171

Choosing the Right BI Tools for FinTech 172

General BI applications 173

Niche BI applications 174

Chapter 10: Reviewing the Role of Open Source 175

Defining Open Source 176

The open source community 176

Free versus open source 177

Looking at Open Source Development Processes 179

Beginning a project 179

Discussing and documenting 180

Perusing the Pros of Open Source 181

Reduced cost 182

Flexibility 183

Freedom 184

Development speed 184

Considering the Cons of Open Source 186

An untraditional support model 186

Time and resources for maintenance 187

The possibility of uneven documentation 187

Security risks 188

Sustainability issues 191

Licensing issues 191

Other concerns to consider 192

Evaluating Open Source Solutions 192

Developing your own solution 193

Finding help for the right open source solution 194

Introducing open innovation 196

Chapter 11: Grasping Data Management Fundamentals 197

Looking at FinTech’s Role in Helping Companies Manage Their Data 198

Understanding ETL: Extract, Transform, and Load 199

Going over the steps 199

Reviewing ETL software requirements 200

Managing Market Data 201

Cleansing and normalizing market data 202

Segmenting and storing market data 203

Dealing with Databases 204

Data warehouses 204

Data lakes 205

Maintaining Data Lineage 206

Breaking Down Big Data 207

Differentiating between Structured and Unstructured Data 208

Comparing SQL and NoSQL 209

SQL databases 209

NoSQL Databases 210

Chapter 12: Adapting for Future Technologies 211

Harnessing the Power of Artificial Intelligence 211

Defining AI 213

Breaking down artificial neural networks 214

Exploring how AI fits into FinTech 215

Leveraging Machine Learning 216

Supervised learning 216

Reinforcement learning 217

Unsupervised learning 217

Making the Most of Chat Bots 217

Checking Out Alternative Data Sources 218

Companies and devices involved in alternative data 219

Alternative data in the financial industry 220

Sourcing, compliance, and regulation 220

Part 3: Working With Fintech Companies 223

Chapter 13: Deciding Whether to Build, Buy, or Partner 225

Transforming Your Company Digitally 226

Exploring Reasons to Build or Buy 228

Looking at reasons to build 229

Checking out reasons to buy 230

Finding the balance between new and legacy software 232

Finding a FinTech Partner 234

Weighing the pros and cons of partnership 235

Researching and scouting potential FinTech partners 236

Working with partners on evolving solutions 239

Describing the Licensing Models 241

Subscription 241

Perpetual 242

Term 243

Source code transactions 243

An open source approach 244

Chapter 14: Managing Integration with Legacy Systems 247

Understanding and Tackling the Challenges of Legacy Infrastructures 248

Comparing old and modern systems 248

Determining whether a legacy system is too old 249

Estimating the cost of doing nothing 250

Discovering how FinTech can help 251

Planning for success 252

Walking through the Technical Steps of Updating a Legacy System 253

Noting areas of concern 253

Making your plan 253

Assembling the team 254

Implementing the plan 256

Avoiding the pitfalls 257

Simplifying Integration with Microservices Architecture 258

The benefits of microservices 258

Migration strategy options 259

Chapter 15: Preparing Your Team for a Successful Project 261

Assembling a Transformation Team 262

Recruiting the right team members 263

Counting on communication 264

Shifting the leadership paradigm 264

Assigning roles 265

Setting Realistic Expectations and Timelines 268

Supporting Change Agents 269

Retaining Good Employees during Change 272

Why employees leave 272

Retention strategies that work 273

Career paths and organizational change 274

Understanding Data-Driven Decision-Making 275

Breaking the Silos 277

Chapter 16: Investing in FinTech Companies 279

Understanding the Players 280

Challenging financial institutions 281

Offering collaborative solutions to financial institutions 281

Navigating the Investor Landscape 282

Crowdfunding 282

Angel investors 284

Venture capital 285

Corporate venture capital 286

Private equity 287

Conducting Due Diligence 288

Performing primary research 288

Doing secondary research 289

Analyzing data 290

Evaluating a Company’s Growth Strategies 291

Studying the competition 291

Listening to customers 292

Asking about technology 292

Inspiring innovation 292

Considering a Company’s Culture 293

Chapter 17: Figuring Out the FinTech Endgame 295

Bringing the Board Up to Speed on FinTech 296

Noting the challenges that financial boards face 297

Embracing digital transformation 298

Developing digital skills 300

Figuring out how to participate 301

Looking into the Future of FinTech 303

Authentication methods 303

Voice technology 304

Artificial intelligence 305

Identifying Industry-Driven Networks, Accelerators, and Incubators 306

The FinTech Innovation Lab 306

Startupbootcamp FinTech 306

Techstars 307

FINTECH Circle 307

Level39 308

Mulling Over Mergers and Acquisitions 308

Consolidation 309

Corporate venturing strategies 310

Part 4: The Part of Tens 313

Chapter 18: Ten Symptoms of Ailing Legacy Technology 315

A Band-Aid Overload 315

A Lack of Backward Compatibility 316

Incompatibility with Other Systems 317

Disparate Data 318

Spreadsheet Risk 319

Latency 321

Increasing Demand for Support and Maintenance 322

Short-Term Gains and Long-Term Pains 323

A Shrinking Talent Pool 323

Lost Market Opportunities 323

Chapter 19: Ten Questions for Determining Whether to Build or Buy 327

Is This Functionality Core to Our Business? 327

Is the Application Unique? 328

Which Approach is More Cost-Effective? 328

Should This Application Be Built? 329

What are the Risks of Building versus Buying? 330

When Does Open Source Make Sense? 331

When Does Building Make Sense? 332

How Can We Accelerate a Build? 333

When Does Buying Make Sense? 334

How Do We Select a Vendor and a Product? 335

Chapter 20: Ten Considerations When Using Open Source Technology 337

Your Business Model 338

Open Source Community Health 338

Tech Support 339

Security 340

Code Audits 341

Reliability 342

Hidden Costs 343

Updates and Upgrades 345

Potential Hardware Impact 346

Legal Considerations 347

Appendix: Building A Fintech Company From the Ground Up 351

Index 361