DR.

GRD COLLEGE OF SCIENCE

SCHOOL OF COMMERCE AND INTERNATIONAL BUSIN ESS

SUBJECT CODE: 21513C BATCH : 2021

NAME OF THE SUBJECT : INTRODUCTION TO FINTECH

SEMESTER : V SEMESTER COURSE : B.COM AM

UNIT I
 UNIT I

Fintech or financial technology means offering financial services over the internet. Everything right from

mobile banking apps to mobile payments apps, blockchain and cryptocurrency, stock trading, etc can be

included in this fintech innovation. In simple words, every business can use fintech for their services and

enhance or automate their work and procedures. Wondering why? Because with this you can Simply offer

exclusive financial services to both businesses and consumers at once.

Traditional financial services are made available to consumers and companies through fintech in ways that were

not possible before. The mobile applications of many traditional banks, for instance, now provide convenient,

on-the-go access to a variety of banking functions, such as checking account balances, transferring payments,

and even depositing checks. In the meanwhile, robo-consultants like Betterment provide an alternative to

traditional financial advisors that is both cost-effective and easy.

Several services used by organizations are made easier thanks to automation brought forth by fintech. Fintech

companies are able to better understand their clients because to the combination of artificial intelligence and

large amounts of consumer data, which in turn fuels marketing, product design, and underwriting.

Examples of FinTech

Since we have covered the basics of fintech now it’s time to be precise. Can you name me two or three top

fintech companies? Wealthfront, Personal Capital, Kabbage are the ones to top the list at present. All of them

have significantly been offering unmatchable fintech services to the financial services sector and retail banking

industry. For better understanding let us go through these common yet important examples of fintech.

1. Online and Mobile Payment Systems

There is no denying the fact that Fintech companies have made some significant changes in the way we

buy and sell products – both as businesses as well as individuals. Conducting transactions via smart devices and

computing systems was a pure myth at some point in time and today it has become a reality.
 2. Trading

This is one of the sure-shot and safest ways to multiply your money in the least amount of time. With

the rise in fintech, by using emerging technologies such as Artificial intelligence, Machine learning, natural

language processing, DLT(Distributed Ledger Technology), big data, gaining relevant insights is no longer

difficult. Also, you will come across a wide range of stock trading apps where not just transactions can be

carried out but also assets can be managed easily.

3. Blockchain and Cryptocurrency

The list is definitely incomplete without Cryptocurrency and blockchain. Buying or selling bitcoins have

now become a new norm to reduce fraud or faulty transactions and safeguard the financial data on Blockchain

technology. Have you heard about libra? It is Facebook’s digital currency. So you see the concept of

cryptocurrency is not slowing down.

4. Crowdfunding Platforms

First, what are these crowdfunding platforms? These platforms enable internet or app users to send or

receive money from different digital platforms at the same time. Yes, you are no longer required to beg in front

of conventional banks for loans, all you have to do is find investors who are ready to support you and your work

is done. GoFundMe and Kickstarter are certain examples to take into consideration here. Whether you want to

pay hospital bills or travel or conduct fundraisers or any such charitable events, crowdfunding platforms can be

extremely helpful.

5. Insurtech

Lastly, we have Insurtech. Fintech is not just limited to the financial institutions or the banking industry,

it has created a huge impact on the insurance industry as well. Insurtech is the name being reckoned again and

again. And why not since this one has left no stone unturned in maximizing savings.

Fintech Transformation
Digital transformation has become a disruptor in almost every industry and fintech is no exception. The

introduction of digital technologies has made the sector more customer-centric and technologically relevant. By

offering services digitally, financial organizations can effectively deliver the experiences their stakeholders and

end-users expect. They can also expect to see growth in employee satisfaction, customer engagement, and

business innovation. Fintechs can also work faster and more efficiently to better compete in the marketplace.

Innovations in financial technology have revolutionized the financial sector by streamlining wealth

management, lending and borrowing, retail banking, fundraising, money transfer/payments, investment

management and more. FinTechs are changing the market dynamics by focusing on emergent technologies that

can provide an unparalleled experience to customers. This has resulted in the FinTech sector witnessing rapid

evolution, transformation and growth.This exponential growth, however, comes with its own set of challenges

such as the ability to scale back-end operations to keep pace with business growth, increased regulatory

scrutiny, exposure to financial fraud and cyber threats, and perceived lack of human touch in services.

WNS, a leading BPM company, is uniquely positioned to address key imperatives such as cost optimization and

process streamlining, and also partner with fintech companies for their next level of growth. We unlock the

competitive edge with our technology expertise, risk and compliance experience, Artificial Intelligence (AI) and

digital transformation solutions:

 We enhance customer experience by offering value-added services, optimize cost and ensure operational

scalability while retaining the 'human touch'

 Ensure robust risk management to enable early detection and prevention of financial fraud and cyber-

crime while ensuring regulatory compliance

 Deliver competitive advantage through AI-led transformation across processes

 Leverage data analytics to enhance existing service offerings and create new business models

Top three challenges companies face with their fintech transformation

Challenge 1: data security and privacy concerns

  In today’s business environment, cybersecurity is more important than ever. According to IBM, the

average cost of a data breach in the financial industry equals $5.85 million. An increasingly digital

environment in the financial sector, including mobile banking and payment apps, is one of the

cybercriminals’ top targets. Cybersecurity vulnerabilities can impact customers’ money as well as

personal data. So that even large reputable companies have to take care of the valuable

 Ensure secure authentication methods in your fintech solution. For example, make sure the users of your

software are regularly changing passwords. You can add the layer to your security by introducing

biometric authentication; biometric cybersecurity is based on a person’s features (fingerprint, voice, iris

pattern, etc.) that minimises the chances of a breach. Implement role-based access control so that only

authorised users can access certain information, keep track of failed sign-ins and monitor suspicious

activity.

Challenge 2: compliance with regulations

 The financial sector is one of the most regulated. Since innovative technologies are increasingly

integrated into financial operations and services, regulatory obligations for such processes also arise.

Different legislative guidelines are set out to protect financial institutions from frauds and malicious

actors, safeguard customers’ investments and sensitive information.

 Moreover, fintech applications are broad and intersect various business sectors. It only complicates

companies’ process of formulating compliance strategies and figuring out regulatory demands.Though

there is no all-size-fits-all approach, fintech companies can create their solutions keeping in mind some

of the top fintech compliance practices, including knowing your customer (KYC), anti-money

laundering (AML), and others.

Challenge 3: lack of tech expertise

 Financial companies with obsolete business applications and systems will not be able to meet the rising

demands of the digitalised world. Modern customers want a seamless a convenient way to access

financial services. According to Business Insider, around 169.3 million mobile banking users, 80% of
 whom prefer mobile banking to access their accounts.Legacy systems and lack of tech experts lead to

services that are not user-friendly and bring no value. A mobile application developed by a specialist

without proper expertise can deprive a company of multiple benefits, for example, NFC chips that

streamline payment methods, fingerprint unlocking that enhances applications’ security, and other

features.Building a top-notch financial solution is not easy; it requires hands-on experience. Many

companies fail to form strong in-house teams; moreover, the hiring process may be pretty time-

consuming.

Fintech transformation and the Future of Finance

Fintech, the application of digital technology to financial services, is reshaping the future of finance– a process

that the COVID-19 pandemic has accelerated. The ongoing digitization of financial services and money creates

opportunities to build more inclusive and efficient financial services and promote economic development.

Fintech is transforming the financial sector landscape rapidly and is blurring the boundaries of both financial

firms and the financial sector. This presents a paradigm shift that has various policy implications, including:

 Foster beneficial innovation and competition, while managing the risks.

 Broaden monitoring horizons and re-assess regulatory perimeters as embedding of financial services

blurs the boundaries of the financial sector.

 Be mindful of evolving policy tradeoffs as fintech adoption deepens.

 Review regulatory, supervisory, and oversight frameworks to ensure they remain fit for purpose and

enable the authorities to foster a safe, efficient, and inclusive financial system.

 Anticipate market structure tendencies and proactively shape them to foster competition and

contestability in the financial sector.

 Modernize and open up financial infrastructures to enable competition and contestability.

 Ensure public money remains fit for the digital world amid rapid advances in private money solutions.

 Pursue strong cross-border coordination and sharing of information and best practices, given the supra-

national nature of fintech.

The evolution of the fintech industry

The fintech industry as we know it today did not exist before the late 1990s and early 2000s. Nonetheless,

fintech’s origins can be traced back to the advent of computer systems and the growth of electronic banking

in the financial services industry in the 1970s and 1980s. These early innovations set the stage for fintech’s

expansion and development in the latter half of the 20th century and beyond. The evolution of the fintech

industry has been rapid and dynamic, with significant changes taking place year after year.

Late 1990s and early 2000s

Early adopters of the fintech sector offered fundamental financial services such as online stock trading and

electronic banking when the sector was still in its infancy. The following are some instances of fintech

products and businesses that appeared in the late 1990s and early 2000s:

 Online stock trading platforms: Customers were able to trade stocks online for the first time thanks

to businesses like E-Trade and Charles Schwab, dramatically enhancing accessibility and

convenience in the stock market.

 Electronic banking: Wells Fargo and Citibank, among other financial institutions, provided online

banking services that let clients monitor their accounts and conduct financial transactions.

Additionally, payment processors, such as PayPal, emerged as early players in the payments space,

providing consumers with a convenient and secure way to send and receive money online.

2005–2010

New products and services were created in industries, including payments, loans and insurance as a result of

the growth of new fintech businesses. The expansion of fintech was also fueled by the growing use of

smartphones during this period. Two examples of fintech products or businesses that appeared between

2005 and 2010 are:

 P2P lending platforms: Lending Club, one of the earliest peer-to-peer (P2P) lending platforms, was

established in 2006 and connects investors and borrowers without the need for traditional

institutions.

 Mobile payments: In 2009, Square, a company specializing in payments on the go, created a system

that enables small companies to accept credit cards via a mobile device. This was a significant

advancement in the payments industry that aided in the development of mobile payments.

2010–2015
Following the financial crisis of 2008, the emergence of alternative finance gave fintech businesses new

prospects in sectors such as crowdfunding and peer-to-peer lending. Blockchain technology’s emergence

has also started to show promise as a potential disruptor in the financial services industry.

The fintech products or companies that emerged during 2010–2015 are:

 Crowdfunding: Kickstarter, founded in 2009, became one of the first crowdfunding platforms,

allowing entrepreneurs and creators to raise funds for their projects from a large number of

supporters.

 Digital currencies: Bitcoin BTC tickers down $27,289, created in 2008, was the first decentralized

digital currency and marked the beginning of the rise of cryptocurrencies. Bitcoin and other digital

currencies provided a new way for consumers to store and transfer value, disrupting traditional

finance.

2015–2020

Fintech products and services have been widely adopted, leading to further consolidation in the sector as it

continues to develop and flourish. To introduce new financial services to the market, traditional financial

institutions started to enter the market and collaborate with fintech firms. The emergence of digital assets

like cryptocurrency gave the market a fresh perspective.

Two examples of fintech products or companies that emerged during 2015–2020 are:

 Robo-advisers: Betterment and Wealthfront, founded in 2008 and 2011, respectively, became two of

the leading robo-advisers, using algorithms and automation to provide personalized investment

advice and manage portfolios for individual investors.

 Digital banking: Challenger banks such as Monzo, N26 and Revolut, founded in 2015, 2015 and

2013, respectively, offered digital-only banking services, providing consumers with alternative

banking options and a more modern and convenient banking experience.

2020–present

Due to the COVID-19 epidemic, many customers are now using digital financial services for the first time,

which has accelerated the expansion of fintech. New technologies like artificial intelligence (AI) and

machine learning are being used to enhance financial services as the sector continues to develop and

innovate. The regulatory landscape is likewise evolving to reflect the development and maturity of the

fintech sector.

Some examples of fintech products or companies that have emerged after 2020 include:

 Digital insurance: Lemonade, founded in 2015, became one of the leading “insurtech” companies

offering a digital platform for purchasing home and renters insurance.

 Digital securities: Companies such as Coinbase, Bakkt and Paxos, founded in 2012, 2018 and 2012,

respectively, have emerged as leaders in the digital securities space, providing platforms for buying,

selling and holding digital assets, such as cryptocurrencies and security tokens.

Related: Binance vs. Coinbase: How do they compare?

 Open banking: Companies like Plaid, founded in 2013, and Yapily, founded in 2016, have emerged

as leaders in the open banking space, providing APIs and infrastructure for secure access to financial

data and enabling innovation in the fintech industry.

 Online lending: Affirm, founded in 2012, and Afterpay, founded in 2014, provide consumers with a

range of credit options for online purchases.

Fintech Typology

Fintech covers a wide range of use cases across business-to-business (B2B), business-to-consumer (B2C),

and peer-to-peer (P2P) markets. The following are just some examples of the types of fintech companies

and products that are changing the financial services industry.

 1. Blockchain and Cryptocurrencies

The first entry among the popular types of financial technology would refer to blockchain technology and

cryptocurrencies. Blockchain could enable peer-to-peer transactions alongside the power of smart contracts

and consensus algorithms for setting new precedents for the growth of financial services. The advantages of

decentralized and immutable ledgers of financial transactions on blockchain with cryptocurrencies or crypto

tokens can introduce many significant improvements in financial services. Most important of all,

applications of blockchain in the fintech sector could drive plausible chances for financial innovation. For

example, decentralized storage of transaction history prevents the risks of counterfeit data and double

spending problems. With more than 80 million crypto wallet owners all over the world, the impact of

blockchain on the democratization of financial services is clearly evident. One of the notable examples of

blockchain-based fintech projects refers to we.trade, an enterprise-grade trade finance platform by IBM.

Cryptocurrencies, based on blockchain technology, are also another notable example of fintech types with a

formidable impact on financial services. Blockchain could help in enabling better privacy, security, and

transparency in tracking financial transactions throughout their entire lifespan. Cryptocurrencies could

utilize the traits of blockchain to ensure better monitoring and control over their assets. Examples of the

popularity of Bitcoin, Ethereum, stablecoins, and many other crypto assets have proved how

cryptocurrencies are integral to the future of fintech.

2. Regulatory Technology

Another notable response to “What are the different types of fintech?” would focus on regulatory

technology. According to the Financial Conduct Authority, regulatory technology is a subclass of fintech

focused on technology that could enable efficient delivery of regulatory obligations. Regulatory technology

or RegTech could utilize cutting-edge technology to improve compliance alongside facilitating the

introduction of simple, cost-effective, secure, and easy-to-understand regulations.

New regulatory frameworks are an obvious necessity in a consistently reforming financial landscape trying

to catch up with the latest innovations and advancements. As one of the notable fintech categories, RegTech

aims at standardization and promotion of transparency in regulatory processes. Furthermore, regulatory

technology in fintech also focuses on the automation of the complete compliance system. RegTech could

offer the foundation for various regulatory solutions such as risk management, compliance management,

regulatory reporting, and transaction monitoring. Some examples of RegTech platforms include Continuity,

Regis-TR and Provenir.

3. Insurance Technology

The next prominent addition among finance technology fintech types would refer to insurance technology or

InsurTech. The growth of digital financial service ecosystems has enabled flexibility for developing

insurance solutions with high value to improve user experience. Insurers are trying to use fintech variants

for the integration of smartphone apps, AI, IoT, machine learning, and many other technologies to improve

the value of insurance services.

Fintech could enable formidable improvements in insurance services, such as an easier collection of

insurance details on smartphones. Similarly, user-friendly apps could play a crucial role in ensuring easier

management of coverage. Many providers have been working on telematics to improve core insurance

products and streamline coverage. At the same time, InsurTech also changes the perspective of users on

insurance products with many value advantages.

4. Mobile Payments

One of the common answers to “What are the different types of fintech?” would also point to mobile

payment systems. Some of you must have used popular applications such as PayPal, Apple Pay, Google

Pay, Venmo, or Google Play for sending or receiving payments.

The impact of a global pandemic turned the whole world’s attention toward possibilities for cashless

transactions. The continuously declining relevance of cash in the post-pandemic era has also called for
organizations in every industry to think about payments. Are mobile payment apps trustworthy? Depending

on the individual functionalities, mobile payments have different value propositions. Popular mobile

payment solutions such as Google Pay and Venmo have gained a substantial number of users. For example,

Venmo has more than 65 million daily users, indicating the trust of users in the app. Build your identity as a

certified blockchain expert with 101 Blockchains’ Blockchain Certifications designed to provide enhanced

career prospects.

5. Peer-to-Peer Lending and Borrowing

The introduction of financial technology has also presented viable prospects for the transformation of

lending and borrowing systems. Fintech has been a crucial player in simplification of the approaches people

follow for borrowing money. The types of financial technology used for transforming financial services like

lending have introduced P2P lending protocols. Any individual could access these platforms and borrow

loans anytime. Interestingly, users of such fintech solutions would also find flexible opportunities for

evaluation of a borrower’s credit readiness. At the same time, the implementation of fintech also removes

the need for attending any office or bank to obtain loans.

P2P lending protocols rely on the power of DeFi to enable seamless access to financial services and improve

user experience. For example, Compound and Aave are popular lending protocols based on DeFi. Another

popular example of lending applications in fintech types would refer to Credit Karma.

6. Personal Finance Management

Personal finance management is also another proven response to “What are the different types of fintech?”

with popular examples. It is a unique and personalized category of fintech focused on enhancing wealth

management and retail investment practices. Personal finance technology, or WealthTech, is a popular and

value-based variant of fintech, which can improve and facilitate operations with better efficiency and

automation.
The primary goal of WealthTech focuses on streamlining the investment process, which can help investors

in easier management of investment portfolios. One of the notable examples of personal finance

management solutions among fintech variants is Monie, a personal finance application for the Egyptian

market.

7. Crowdfunding

The crowdfunding market has the potential for steady growth in the forecast period from 2021 to 2026, with

a CAGR of more than 16%. Crowdfunding platforms have removed the need to visit a bank or pitch ideas

before venture capitalists to obtain loans or funding for projects. The outline of different fintech categories

would also emphasize the new methods for raising capital by employing innovative improvements.

Crowdfunding fintech services could offer the ideal opportunity for micro and small enterprises to discover

investors for their projects.

8. Robot-based Advice and Stock Trading

The most formidable example of financial technology fintech types would refer to robot-based advisors.

You must have learned about the importance of AI and machine learning in the burgeoning fintech industry.

Robot-based advisors are applications powered by AI and ML for offering recommendations regarding

financial decisions. As a result, financial service users could figure out an alternative to hiring an expert for

financial advice. Most important of all, your robot advisor would never take breaks and would provide

round-the-clock data analysis capabilities.

Similarly, the outline of different types of financial technology also includes references to stock trading

apps. Stock trading apps are useful tools for investors to conduct desired transactions directly from their

smartphones. The power of AI and ML could help in capitalizing on meaningful insights from humongous

piles of data. At the same time, the use of blockchain could also streamline the security of the personal and

financial data of investors.

Fintechs target emerging economics

EMs prove to be a productive ground for financial technology. Let’s have a look at the top reasons why.

1. People open to new financial technologies

The emerging markets account for 85% of the global population, which produces 40% of global economic

output. Over the last decade, EMs increased their share by 10% as their economies have been moving from

export toward more consumer-focused approaches.

Also, nearly 90% of the EM population are people under 30. Tech-savvy young people quicker adopt

advanced technologies and consume more digital products.

2. Less strict laws and desire for financial inclusion

Law compliance has always been a growing pain for the financial sector.Given the severe fines for breaking

the rules, any western financial business must always stay aware of new and existing laws. But since EM

governments recognize the need for a more inclusive financial system, they give more freedom of action.

They provide relaxed regulations, support for expansion, tax incentives, and simple terms and conditions.

3. Much room for innovation

In order to meet the need for financial inclusion, EMs are ready for the fast expansion of new

inventions.Technology has changed from traditional banking to e-banking and now to mobile options. This

creates more opportunities even across less financially inclusive regions. With the increase in mobile

phones, these banking channels can get broader support at a lower cost. For example, since the cost of

buying a smartphone is pretty small, countries like India and Kenya have managed to decrease their

unbanked people. Also, small local providers ensure that customers can access digital services in even

extremely remote areas.

4. Many customers and e-commerce growth

E-commerce booms in emerging markets. Better internet connection and the rise of mobile apps have

increased the number of online retailers and consumers. But running an online business is impossible
without digital payment solutions. And since e-commerce is growing non-stop, the services that fintech can

provide for emerging economies can go far beyond regular payment options. While most deals in such areas

are still made with cash, more and more countries are moving away from paper money. And the shift to

electronic and digital banking is getting faster.

5. Huge project investment

Governments and some large companies in the developing regions show big interest in making investments

in the sector. According to Statista, global fintech financing increased from $59.2 billion in 2017 to $210.1

billion in 2021.

Fintech in Emerging Markets: Opportunities and Challenges for Growth

Fintech Opportunities in Emerging Markets

 Because of the large unbanked or underbanked population, emerging markets present a significant

opportunity for fintech companies. Traditional financial services are inaccessible or prohibitively

expensive for large segments of the population in many emerging markets. Fintech has the potential

to make financial services more affordable and accessible to these underserved markets.

 Mobile payments are one of the most significant opportunities for fintech in emerging markets.

Mobile payments have replaced traditional banking services as the primary method of payment in

many emerging markets, with a large portion of the population having access to mobile phones but

not traditional banking services.

 Fintech companies can use mobile payments to provide financial services, such as loans and

insurance products, to these populations.

 The use of blockchain technology is another opportunity for fintech in emerging markets.

Blockchain can provide a secure and transparent way to conduct financial transactions, which is

especially valuable in markets where traditional financial institutions are distrusted.

  Blockchain can be used by fintech companies to provide services, such as remittances and

microfinance, allowing individuals and small businesses to participate in the global economy.

 Finally, fintech firms can use artificial intelligence and machine learning to provide personalized

financial services to emerging market customers. These technologies can analyze large amounts of

data to identify trends and patterns, allowing fintech companies to offer products and services that

are tailored to each individual customer's specific needs.

Emerging Market Fintech Challenges

 While emerging markets offer significant opportunities for fintech, there are challenges that must be

addressed to ensure long-term growth. Regulatory compliance is one of the most difficult challenges.

Many emerging markets have complex and changing regulatory environments, which can make it

difficult for fintech companies to enter. To ensure that their products and services comply with local

laws and regulations, fintech companies will need to collaborate closely with regulators.

 Another issue that many emerging markets face is a lack of infrastructure. Many times, the infrastructure

needed to support fintech services, such as reliable internet connectivity and digital identity systems, is

still lacking. Fintech firms will need to collaborate with local governments and other stakeholders to

build the infrastructure required to support their services.

 A third issue is a lack of trust in fintech firms. Traditional financial institutions are regarded as more

trustworthy than fintech firms in many emerging markets. Fintech companies will need to demonstrate

their dependability and security to potential customers in order to gain their trust.

 Finally, fintech firms must address the digital divide in emerging markets. While mobile phones are

common in many emerging markets, significant portions of the population lack access to digital devices

or are uncomfortable using them.

 Fintech firms must create products and services that are accessible to these populations, such as agent

networks or offline capabilities.

  Fintech offers significant growth opportunities in emerging markets. Mobile payments, blockchain

technology, and artificial intelligence have the potential to make financial services more affordable and

accessible to underserved populations.

 However, significant challenges, such as regulatory compliance, infrastructure, trust, and the digital

divide, must be addressed. Fintech firms that can address these issues will be well-positioned to succeed

in the rapidly evolving financial services industry in emerging markets.

 These firms can use collaboration with traditional financial institutions to overcome some of the

challenges in emerging markets. Traditional financial institutions have built trust and credibility with the

local population in many emerging markets. Fintech companies can collaborate with these institutions to

expand their reach and leverage the financial institution's existing infrastructure.

 Collaboration with local startups and entrepreneurs is another possible solution. These individuals have

a thorough understanding of the local market and can provide valuable insights into the local

population's needs and preferences. Fintech firms can use these collaborations to create products and

services that are tailored to the specific needs of the local market.

 Finally, fintech firms can use education and awareness campaigns to help bridge the digital divide in

emerging markets. These campaigns can assist in educating potential customers about the benefits of

fintech services as well as provide them with the knowledge and skills required to access these services.

Fintech firms, for example, can collaborate with local schools and community centers to provide

instruction on how to use digital devices and access fintech services.

Fintech regulations

Fintech regulations are a set of rules and guidelines that govern the operations of fintech companies, which

leverage technology to provide financial services and products. Fintech is a rapidly growing sector, with

companies disrupting traditional financial institutions and challenging established business models. However,

fintech also poses unique risks and challenges, such as data security, consumer protection, and financial
stability. To address these issues, regulators around the world have been developing new regulatory frameworks

to promote innovation while ensuring that consumer protection and financial stability are maintained.

The regulatory landscape for fintech is complex and constantly evolving. Countries have adopted different

approaches to regulating fintech, with some taking a more hands-on approach while others adopting a more

laissez-faire attitude. Some countries have created specific regulatory sandboxes to allow fintech companies to

test new products and services without facing the full burden of regulation. Other countries have implemented

new laws and regulations to govern specific areas of fintech, such as online lending, payment systems, and

digital currencies. Despite the differences in regulatory approaches, there are some common themes that emerge

in fintech regulation. For example, regulators are increasingly focusing on data security and privacy as fintech

companies collect and process large amounts of sensitive financial and personal data. Additionally, there is a

growing focus on consumer protection as fintech companies continue to expand their product offerings and

services to more vulnerable segments of the population.

 As technology advances, so does the duty to govern the goods and services that FinTech laws provide.

The primary regulatory agencies in charge of this sector are the Reserve Bank of India (RBI), Insurance

Regulatory & Development Authority of India, the Securities Exchange Board of India (SEBI), the

Ministry of Corporate Affairs, and the Ministry of Electronics and Information Technology (MEITY).

The proper regulatory agency in charge of its goods and services would govern a FinTech firm. For

example, the RBI regulates FinTech enterprises that deal with account aggregation, peer-to-peer credit,

cryptocurrencies, payments, etc.

 In India, the FinTech regulatory structure is significantly fragmented, with no body of rules or norms

governing all FinTech services. As a result, this industry is tough to control since there is no common set

of FinTech laws. The sections that follow go through some of the important rules that apply to FinTech

enterprises in India.

The Payment & Settlement Systems Act of 2007

Payments in India is governed by the Payments & Settlements Systems (PSS) Act of 2007. According to the

PSS Act, a "payment system" cannot be developed or operated without the prior authorization of the RBI. A

"payment system," according to the PSS Act, is "a system that allows payment to be made from one person to

another," but it expressly excludes a stock exchange. PPIs, money transfer services, smart card operating

systems, and debit and credit card operating systems are all payment methods. Before a payment system can

begin or be put into operation, the RBI must approve it. As a result, compliance with this FinTech Law is

required for FinTech businesses to function.

The Companies Act of 2013

FinTech companies, like any other business in India, must register under the Companies Act 2013 and follow

all of the Act's laws and regulations. The Act incorporates and authorises FinTech companies like Paytm,

Bharat Pe, and others.

The Consumer Protection Act of 2019

For the Consumer Protection Act, companies in the FinTech business are considered service providers. Unfair

commercial practises are defined as the "publication of consumer's personal information submitted in

confidence unless required by law or in the public interest," according to Section 2(47)(ix) of the Act.

Comparable to this are the Information Technology Rules, 2011, which restrict the sharing of a consumer's

personal information without prior authorisation unless required by law. FinTech companies must follow this

rule since they handle sensitive personal data belonging to their customers.

The Prevention Money Laundering Act 2002

The Prevention of Money Laundering Act & the Prevention of Money Laundering Rules 2005, also the KYC

Master Directions, are the primary rules that provide anti-money laundering standards and operational

guidelines for enterprises that offer financial services in the country. The rules mentioned above oblige banking

institutions, financial institutions, and intermediaries to validate customer identification, keep records, and send

information to the Financial Intelligence Unit - India in a certain format (FIU-IND).

The Information Technology Act of 2000

As FinTech platforms acquire and keep more user information, particularly behavioural and financial

information about individuals, the need to preserve consumer privacy and data has grown. However, currently,

India needs a dependable data privacy system. The two primary pieces of law governing personal data privacy

are the Information Technology Act of 2000 (IT Act) and the Rules on IT (Reasonable Security Practices &

Procedures & Sensitive Personal Data or Information).

FinTech companies must also observe the IT Act's rules. Businesses are liable for damages under Section 43A

if they fail to take adequate security steps to protect their customers' sensitive personal data. In addition, section

72A imposes penalties for disclosing information in violation of a legitimate contract. Individual personal data

is critical to FinTech businesses. Therefore, following the mandatory data security rules is essential to prevent

legal complications.

The Reserve Bank of India's Regulations

The Reserve Bank of India Act and a set of regulating guidelines and circulars are the primary regulatory

mechanisms that apply to NBFCs. Certain FinTechs are regulated by the RBI, either directly through issuing

NBFC licences to them or indirectly through regulating banks and NBFCs associated with FinTech. In order to

be licenced by the RBI, the organisation must meet a number of criteria. Several digital lenders in India have

received NBFC approval.

The Insurance Act

Insurance technology, or InsurTech, companies cooperate with a wide range of stakeholders to disrupt the

insurance industry's value chain. Through their relationships with insurance companies, they have aided in the

acceleration of application procedures as well as the automation of testing and claim processes. Some

companies also act as online aggregators on occasion, allowing customers to compare the breadth of coverage,

the term, the premium, and other relevant characteristics before making a decision. These web aggregators must
be approved by the Insurance Regulatory Development Authority of India, the country's primary insurance

sector regulator.

The Foreign Exchange Management Act

According to RBI rules published under the FEMA, numerous cross-border transaction services have been

formed due to improvements in India's FinTech industry. Foreign currency transactions are governed by the

Foreign Exchange Management Act of 1999 ("FEMA") and the rules and regulations promulgated under it.

According to the RBI's rules established under the FEMA, Accredited Dealer Category II Entities, such as

usurers, are permitted to provide foreign currency pre-paid cards in India to Indian citizens in compliance with

the FEMA.

Regulations help to create a future-proof fintech?

Every business wants to grow. In the financial services sector, compliance with appropriate regulations is

important to facilitate expansion. The sooner and more comprehensively a company embraces regulations, the

easier future expansion will be. Complying with specific regulations is necessary for international expansion.

As fintechs are often able to operate in different countries and jurisdictions from an early stage, they must

comply with a variety of regulations. However, there are certain similarities across countries.

 Acquiring new licenses.: As fintechs grow, they will often need new operating licenses. A common

journey is from an e-money license to a full banking license, which will attract greater regulatory

scrutiny and compliance requirements.

 Implementing new technologies.: Expanding into new technology and services is likely to require

compliance with additional regulations. Fintechs are often heavy digital adopters, with areas such as

artificial intelligence, machine learning, and cryptocurrency. Compliance helps fintechs to rapidly adopt

new technologies and methods.

 Supports a good user experience: Getting compliance right is essential for offering a superior customer

experience. Customers want robust and secure interactions but also fast and friction-free experiences. A

compliant KYC and onboarding process ensures this.

UNIT II
Unit II

Payment, Cryptocurrencies & Blockchain

Let's start with some quick definitions. Blockchain is the technology that enables the existence of

cryptocurrency (among other things). Bitcoin is the name of the best-known cryptocurrency, the one for

which blockchain technology, as we currently know it, was created. A cryptocurrency is a medium of

exchange, such as the US dollar, but is digital and uses cryptographic techniques and it’s protocol to verify

the transfer of funds and control the creation of monetary units.

What is blockchain technology?

A blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this

technology, participants can confirm transactions without a need for a central clearing authority. Potential

applications can include fund transfers, settling trades, voting and many other issues

What is cryptocurrency?
Blockchain's benefits and unknowns:

Individual Payment:

Open items are paid individually according to the following prerequisites:

  With the POR procedure, individual payment is the only possible payment method. The payment

method must be classified accordingly. You must specify in the master record of the customer/vendor

that the customer/vendor receives payments with the POR procedure.

 If you always want to pay the open items for a customer/vendor individually, you can determine this in

the company code-specific area of the master record. To do this, you mark the field Individual payment .

 If you want to pay one of the open items individually with a certain payment method, define this

payment method as individual payment. See Company Code Specifications for the Payment Method:

Graphic(5). This payment method must be entered in those open items that are to be paid individually.

Example:

You want to pay individual items with a separate check. Define a second payment method for check in addition

to the standard payment method, for which you set the same specifications and also define as an individual

payment. Enter this payment method in the open items for which a separate check is to be created.

Real-Time Gross Settlement (RTGS):

What Is Real-Time Gross Settlement (RTGS)?

The term "real-time gross settlement (RTGS)" refers to a funds transfer system that allows for the

instantaneous transfer of money and/or securities. RTGS is the continuous process of settling payments on an

individual order basis without netting debits with credits across the books of a central bank. Once completed,

real-time gross settlement payments are final and irrevocable. In most countries, the systems are managed and

run by their central banks.

Key Takeaways:

 Real-time gross settlement is the continuous process of settling interbank payments on an individual

order basis across the books of a central bank.

 This system's process is opposed to netting debits with credits at the end of the day.

 Real-time gross settlement is generally employed for large-value interbank funds transfers.

 RTGS systems are increasingly used by central banks worldwide and can help minimize the risks

related to high-value payment settlements among financial institutions.

How Real-Time Gross Settlement (RTGS) Works?

When you hear the term real-time, it means the settlement happens as soon as it is received. So, in simpler

terms, the transaction settles in the receiving bank immediately after it is transferred from the sending bank.

Gross settlement means transactions are handled and settled individually, so multiple transactions aren't

bunched or grouped together. This is the basis of a real-time gross settlement system.
An RTGS system is generally used for large-value interbank funds transfers operated and organized by a

country’s central bank. These transfers often require immediate and complete clearing. As mentioned above,

once transactions are settled, they cannot be reversed.

In 1970, the U.S. Fedwire system was launched. It was the first system resembling a real-time gross settlement

system. It was an evolution of the telegraph-based system used to transfer funds electronically between U.S.

Federal Reserve banks.1

The British system, called the Clearing House Automated Payment System (CHAPS), is currently run by

the Bank of England. France and other Eurozone nations use a system called Trans-European Automated Real-

time Gross Settlement Express Transfer System (TARGET2). Other developed and developing countries have

also introduced their own RTGS-type systems.23

Real-time gross settlement lessens settlement risk—also referred to as delivery risk—overall, as interbank

settlement usually occurs in real-time throughout the day—instead of simply all together at the end of the day.

This eliminates the risk of a lag in completing the transaction. RTGS can often incur a higher charge than

processes that bundle and net payments.

RTGS vs. Bankers' Automated Clearing Services (BACS):

A real-time gross settlement system is different from net settlement systems, such as the United Kingdom’s

Bacs Payment Schemes Limited, which was previously known as the Bankers' Automated Clearing Services

(BACS). Transactions that take place between institutions with BACS are accumulated during the day. At the

close of business, a central bank adjusts the active institutional accounts by the net amounts of the funds

exchanged.4

RTGS does not require an actual physical exchange of funds. A central bank will often adjust the accounts of

the sending and receiving bank in electronic form. For example, sender Bank A's balance will be reduced by

$1 million, while recipient institution Bank B’s balance will be increased by $1 million.5
Benefits of RTGS:

RTGS systems, increasingly used by central banks worldwide, can help minimize the risk to high-value

payment settlements among financial institutions. Although companies and financial institutions that deal with

sensitive financial data typically have high levels of security in place to protect information and funds, the

range and nature of online threats are constantly evolving.

RTGS-type systems help protect financial data by making it vulnerable to hackers for a briefer time window.

Real-time gross settlement can allow a smaller window of time for critical information to be vulnerable, thus

helping mitigate threats. Two common examples of cybersecurity threats to financial data are social

engineering or phishing—tricking people into revealing their information—and data theft, whereby a hacker

obtains and sells data to others.

Example of a Real Time Gross Settlement System

An example of a real-time gross settlement system would be when a customer has their bank send a transfer of

funds to another bank via the RTGS and the transfer happens instantaneously. If this transfer was done via

automated clearing house (ACH), the transfer may take a few days to clear.

Difference Between Net Settlement and Real-Time Gross Settlement

The difference between net settlement and real-time gross settlement (RTGS) is that net settlement involves

aggregate data that is processed and settled at the end of the day whereas RTGS involves data with individual

transactions in real-time (processed and settled instantly).

The Bottom Line:

Real-time gross settlement (RTGS) is a key component of the financial system, settling interbank payments

continuously, allowing for the instantaneous transfer of money/securities. RTGS systems reduce the risk to

financial institutions in regard to high-value transfers.

What is an E-Wallet?

An E-Wallet, also known as an electronic wallet or mobile wallet, goes a long way towards facilitating

frictionless purchases. Mobile wallets use near-field communications technology to enable consumers to

make contactless payments using their mobile device, tablet or smart watch instead of using a physical card.

Unlike a digital wallet where the money remains in the bank account, an E-Wallet is preloaded with money

which is then used for transactions.

How does an E-Wallet work?

E-Wallets work just like a physical wallet, containing not only credit card and debit card data, but potentially

loyalty card data, digital coupons, airline boarding passes and even driving licence information. An E-Wallet

can make secure payments both online and in a physical store without the need to memorise individual

passwords. Digital wallets only store payment information, communicating with your bank account to process

transactions, whereas E-Wallets process the transaction directly.

E-Wallets are often used in conjunction with mobile phone payment systems to facilitate fast, easy and secure e-

commerce and in-store payments through smartphones.

What are the Types of Digital Wallets?

Listed below are the types of digital wallets–

Closed wallet

 A closed wallet is a payment method that allows users to make transactions through an app or website.

 These wallets are typically created by businesses for their customers to use.

 With a closed wallet, users can only use the funds stored in the wallet to complete transactions with the

wallet’s issuer.

 If a transaction is canceled or a refund is issued, the entire amount is returned to the wallet.
  Closed wallets do not allow users to make payments outside of the wallet’s issuer.

Semi-closed wallet

 A semi-closed wallet is a payment method that allows users to easily perform transactions at certain

merchants.

 These wallets have a limited coverage area, meaning they can only be used at merchants that accept the

wallet’s issuer’s contract or agreement.

 To accept payments from a semi-closed wallet, merchants must agree to the contract or agreement with

the issuer.

Open wallet

 Banks offer open wallets, which allow users to perform any type of transaction.

 Open wallets offer flexibility, allowing users to easily transfer funds.

 Payments can be made online and in-store at any time.

 Open wallets can be used to conduct transactions from anywhere in the world, as long as both the sender

and receiver have accounts on the same application.

Why are Digital Wallets Popular- The Benefits:

Digital wallets have gained enough popularity owing to the multiple benefits that they offer. Let’s take a look at

them in detail:

 Security

o Digital wallets are password-protected, providing an added layer of security.

o Biometric authentication is often used to further secure digital wallets.

 No minimum balance requirement

o There is no requirement to maintain a minimum balance in a digital wallet.

o Users can add as much or as little money as they need to their digital wallet.

 Quick transactions

o Digital wallets enable quick and easy transactions.

o Digital wallet apps are simple and user-friendly, making it easy to complete transactions.
  No additional charges

o There are no fees or additional charges associated with using a digital wallet.

o Digital wallets are available for use at no cost.\

 Ease of use

o Digital wallets can be accessed from anywhere and at any time, providing convenience for users.

o Digital wallets require only a smartphone, an internet connection, and a linked bank account.

 Multiple transactions

o Digital wallets can be used for a wide range of transactions, such as paying bills and completing

online purchases.

o Digital wallets can be used at the point of sale by scanning a QR code or by adding a mobile

number.

Features of Digital Wallets

There are many features that make digital wallets a popular choice among consumers. These features may vary

depending on the specific payment application, but they typically include the ability to easily make transactions,

transfer funds, and access payment history. Some digital wallets may also offer additional features, such as the

ability to make payments online and in-store, and the ability to conduct transactions from anywhere in the

world.

Easy registration process

To create an account on Paytm, users just need to follow the instructions provided. This process is easy and

straightforward, and there are no hidden charges or fees involved.

 Download and install the Paytm app on your mobile phone

  Log in to the app using your mobile phone number or email address

 Enter the one-time password (OTP) to confirm your registration

 Connect your Paytm digital wallet to your bank account

 Add funds to your digital wallet and start using it for transactions!

QR-enabled technology

Digital wallets, such as Paytm, use QR (Quick Response) technology to allow users to quickly and easily make

transactions. To use this feature, a user simply needs to scan the QR code displayed by the merchant using their

digital wallet app. This eliminates the need for entering long card numbers or other payment information,

making the process more convenient and efficient. Additionally, the use of QR technology also helps to ensure

the security of transactions.

Simplified payment Process

Paytm makes it easy for users to pay for their electricity, gas, and mobile phone bills. In addition to these

common uses, digital wallets can also be used to book flights, train tickets, and other services. Users can also

set up alerts and enable auto-payment options to ensure that their payments are made on time. This makes

managing and paying for a variety of different expenses quick and convenient.

User-friendly

Digital wallets, also known as e-wallets, are designed with a focus on user-friendliness and safety. They offer a

simple and intuitive user interface that makes it easy for users to manage and track their transactions. With

digital wallets, users can easily perform a variety of functions, such as transferring funds, adding money to their

wallet, checking their balance, and more.

Uses of a Digital Wallet:

A digital wallet app allows users to easily conduct a variety of transactions, including but not limited to the

examples mentioned.

 Paying bills for electricity, gas, and mobile phone services

 Booking flights, train tickets, and other services

 Setting up alerts and enabling auto-payment options

 Transferring funds and adding money to the wallet

 Checking the balance and managing transactions.

 Foreign remittances under some guidelines

 Buy subscriptions

Alternate Finance:

Alternative finance refers to financial channels, processes, and instruments that have emerged outside of the

traditional finance system, such as regulated banks and capital markets.[1] Examples of alternative financing

activities through 'online marketplaces' are reward-based crowdfunding, equity crowdfunding, revenue-based

financing, online lenders, peer-to-peer consumer and business lending, and invoice trading third party payment

platforms.[2]

Alternative finance instruments include cryptocurrencies such as Bitcoin, SME mini-bond, social impact bond,

community shares, private placement and other 'shadow banking' mechanisms. Alternative finance differs to

traditional banking or capital market finance through technology-enabled 'disintermediation',[3] which means

utilising third party capital by connecting fundraisers directly with funders, in turn, reducing transactional costs

and improve market efficiency.[4]

Alternative finance has grown into a considerable global industry in recent years following the financial crisis,

according to various reports, particularly for small and medium enterprises.

The ABCD’s of Alternate Finance:

ABCD in FinTech

The term ABDC in FinTEch actually corresponds to four integral technologies that have contributed to the

creation and implementation of most technologies in the financial technology industry.

The acronym ABCD stands for:

A - Artificial Intelligence,

B - Blockchain,

C- Cloud Computing and

D - Data, and it's associated with most offered FinTech services.

1.Artificial Intelligence

Artificial intelligence is known as a field of computer science that aims to facilitate the design and development

of computers that can perform activities that are the domain of humans and, in particular, that require

intelligence. Its concept was first used by John McCarthy in 1956 during a conference in Dartmouth devoted to

technology.

Nowadays, AI is understood as the ability of machines to exhibit human skills such as reasoning, learning,

planning, and creativity, while allowing technical systems to perceive their environment and solve problems,

working towards a specific goal. There are various aspects of AI, including natural language processing (NLP),

which refers to language, often written, and machine learning.

2017 was a breakthrough year when it comes to the development of Artificial Intelligence. The interest in AI

has skyrocketed, many of its applications have taken place in the FinTech industry - these events

led Fortune and Forbes to declare 2017 the year of Artificial Intelligence.

AI undoubtedly has an impact on changing the alternative finance user interfaces - from facial and voice

recognition to biometric identity management to chatbots, whose main task is to offer personalized

recommendations regarding customer needs. It is also allowing some financial firms to create new business

models focused on analyzing customer data rather than building platforms to provide financial fund flow.

2.Blockchain

Blockchain is otherwise a distributed database or general ledger that is shared by computer network nodes.

Blockchain as a database stores all electronic data in digital form. It plays a key role in cryptocurrency systems

(such as Bitcoin or Ethereum) in maintaining a secure and decentralized transaction ledger. This innovative

technology will ensure fidelity and security of data recording.

An important purpose of blockchain is to enable the recording and dissemination of digital information,

excluding its editing. Thanks to this, blockchain is recognized as the basis for immutable ledgers or transaction

records, i.e. distributed ledger technologies (DLT).

Cryptocurrencies are now recognized as one of the most recognizable developments in the financial technology

sector. It is a new digital asset that has emerged as a viable alternative funding source for both individuals and

businesses. Cryptocurrencies are now a new online capital market that is revolutionizing transaction processes

across multiple industries.

3.Cloud Computing

The name cloud computing comes from the fact that the information being accessed is located remotely in a

cloud or virtual space. Thanks to the cloud, it is possible to access all data, files and applications that are stored

in the cloud on remote servers - it means that the user does not need to be in a specific place to access it.

Cloud computing has also contributed to the development of new business models - for example, software as a

service (SaaS).

It replaces the traditional model of developing and selling software by vendors, but requires a software license.

Software that is in the cloud can be sold at a lower initial cost, for example, based on a subscription model.

This means that initial operating costs are lower, so it is especially important to prototype new business models

and user interfaces to implement them faster and more efficiently.

4.Data

Banks and financial institutions for a long time generated large amounts of information about customers and

mainly based on it.

Most of the data was collected through paper forms or surveys filled out by customers and employees. Such

documentation was problematic to search or manipulate for analysis.

The digitization of paper data and documents allows for easier storage, transmission, searching, processing,

analyzing, and displaying of information, facilitating online banking and allowing to better manage customer

information. Data Storage cost continues to fall, while data is being collected at a relatively fast pace through

online activity and connected devices. It also allows for gathering structured as well as the unstructured data.

In the FinTech industry, a special impact has Big Data because it helps in organizing massive amounts of data

and transforming it into actionable insights. These Big Data insights can then be used by FinTech companies to
drive market forecasts, design future strategies, and even personalize and meet customer expectations, among

other advantages.

Blockchain, Big Data, Cloud Computing, and Artificial Intelligence, undoubtedly, have an impact on the

development and growth of alternative finance and are the driving force behind FinTech.

Nowadays, innovation is one of the key features that enterprises should have because thanks to it, the public or

private companies can survive on the market and have the opportunity to develop.

Cryptocurrency:

Cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. It’s a peer-to-peer

system that can enable anyone anywhere to send and receive payments. Instead of being physical money carried

around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online

database describing specific transactions. When you transfer cryptocurrency funds, the transactions are recorded

in a public ledger. Cryptocurrency is stored in digital wallets.

Cryptocurrency received its name because it uses encryption to verify transactions. This means advanced

coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The

aim of encryption is to provide security and safety.

The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the best known today. Much of

the interest in cryptocurrencies is to trade for profit, with speculators at times driving prices skyward.

The Basics about Cryptocurrency:

Cryptocurrency comes under many names. You have probably read about some of the most popular types of

cryptocurrencies such as Bitcoin, Litecoin, and Ethereum. Cryptocurrencies are increasingly popular

alternatives for online payments. Before converting real dollars, euros, pounds, or other traditional currencies

into ₿ (the symbol for Bitcoin, the most popular cryptocurrency), you should understand what cryptocurrencies

are, what the risks are in using cryptocurrencies, and how to protect your investment.
A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption

algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a

virtual accounting system. To use cryptocurrencies, you need a cryptocurrency wallet. These wallets can be

software that is a cloud-based service or is stored on your computer or on your mobile device. The wallets are

the tool through which you store your encryption keys that confirm your identity and link to your

cryptocurrency.

What are the risks to using cryptocurrency?

Cryptocurrencies are still relatively new, and the market for these digital currencies is very volatile. Since

cryptocurrencies don't need banks or any other third party to regulate them; they tend to be uninsured and are

hard to convert into a form of tangible currency (such as US dollars or euros.) In addition, since

cryptocurrencies are technology-based intangible assets, they can be hacked like any other intangible

technology asset. Finally, since you store your cryptocurrencies in a digital wallet, if you lose your wallet (or

access to it or to wallet backups), you have lost your entire cryptocurrency investment.

Follow these tips to protect your cryptocurrencies:

 Look before you leap! Before investing in a cryptocurrency, be sure you understand how it works, where

it can be used, and how to exchange it. Read the webpages for the currency itself (such

as Ethereum, Bitcoin or Litecoin) so that you fully understand how it works, and read independent

articles on the cryptocurrencies you are considering as well.

 Use a trustworthy wallet. It is going to take some research on your part to choose the right wallet for

your needs. If you choose to manage your cryptocurrency wallet with a local application on your

computer or mobile device, then you will need to protect this wallet at a level consistent with your

investment. Just like you wouldn't carry a million dollars around in a paper bag, don't choose an

unknown or lesser-known wallet to protect your cryptocurrency. You want to make sure that you use a

trustworthy wallet.
  Have a backup strategy. Think about what happens if your computer or mobile device (or wherever you

store your wallet) is lost or stolen or if you don't otherwise have access to it. Without a backup strategy,

you will have no way of getting your cryptocurrency back, and you could lose your investment

Cryptocurrency examples:

There are thousands of cryptocurrencies. Some of the best known include:

Bitcoin:

Founded in 2009, Bitcoin was the first cryptocurrency and is still the most commonly traded. The currency was

developed by Satoshi Nakamoto – widely believed to be a pseudonym for an individual or group of people

whose precise identity remains unknown.

Ethereum:

Developed in 2015, Ethereum is a blockchain platform with its own cryptocurrency, called Ether (ETH) or

Ethereum. It is the most popular cryptocurrency after Bitcoin.

Litecoin:

This currency is most similar to bitcoin but has moved more quickly to develop new innovations, including

faster payments and processes to allow more transactions.

Ripple:

Ripple is a distributed ledger system that was founded in 2012. Ripple can be used to track different kinds of

transactions, not just cryptocurrency. The company behind it has worked with various banks and financial

institutions.

Non-Bitcoin cryptocurrencies are collectively known as “altcoins” to distinguish them from the original.

How to buy cryptocurrency?

You may be wondering how to buy cryptocurrency safely. There are typically three steps involved. These are:

Step 1: Choosing a platform

The first step is deciding which platform to use. Generally, you can choose between a traditional broker or

dedicated cryptocurrency exchange:

 Traditional brokers. These are online brokers who offer ways to buy and sell cryptocurrency, as well as

other financial assets like stocks, bonds, and ETFs. These platforms tend to offer lower trading costs but

fewer crypto features.

 Cryptocurrency exchanges. There are many cryptocurrency exchanges to choose from, each offering

different cryptocurrencies, wallet storage, interest-bearing account options, and more. Many exchanges

charge asset-based fees.

When comparing different platforms, consider which cryptocurrencies are on offer, what fees they charge, their

security features, storage and withdrawal options, and any educational resources.

Step 2: Funding your account

Once you have chosen your platform, the next step is to fund your account so you can begin trading. Most

crypto exchanges allow users to purchase crypto using fiat (i.e., government-issued) currencies such as the US

Dollar, the British Pound, or the Euro using their debit or credit cards – although this varies by platform.

Crypto purchases with credit cards are considered risky, and some exchanges don't support them. Some credit

card companies don't allow crypto transactions either. This is because cryptocurrencies are highly volatile, and

it is not advisable to risk going into debt — or potentially paying high credit card transaction fees — for certain

assets.

Some platforms will also accept ACH transfers and wire transfers. The accepted payment methods and time

taken for deposits or withdrawals differ per platform. Equally, the time taken for deposits to clear varies by

payment method.

An important factor to consider is fees. These include potential deposit and withdrawal transaction fees plus

trading fees. Fees will vary by payment method and platform, which is something to research at the outset.

Step 3: Placing an order

You can place an order via your broker's or exchange's web or mobile platform. If you are planning to buy

cryptocurrencies, you can do so by selecting "buy," choosing the order type, entering the amount of

cryptocurrencies you want to purchase, and confirming the order. The same process applies to "sell" orders.

There are also other ways to invest in crypto. These include payment services like PayPal, Cash App, and

Venmo, which allow users to buy, sell, or hold cryptocurrencies. In addition, there are the following investment

vehicles:

 Bitcoin trusts: You can buy shares of Bitcoin trusts with a regular brokerage account. These vehicles

give retail investors exposure to crypto through the stock market.

 Bitcoin mutual funds: There are Bitcoin ETFs and Bitcoin mutual funds to choose from.
  Blockchain stocks or ETFs: You can also indirectly invest in crypto through blockchain companies that

specialize in the technology behind crypto and crypto transactions. Alternatively, you can buy stocks or

ETFs of companies that use blockchain technology.

How to store cryptocurrency?

Once you have purchased cryptocurrency, you need to store it safely to protect it from hacks or theft. Usually,

cryptocurrency is stored in crypto wallets, which are physical devices or online software used to store the

private keys to your cryptocurrencies securely. Some exchanges provide wallet services, making it easy for you

to store directly through the platform. However, not all exchanges or brokers automatically provide wallet

services for you.

There are different wallet providers to choose from. The terms “hot wallet” and “cold wallet” are used:

 Hot wallet storage: "hot wallets" refer to crypto storage that uses online software to protect the private

keys to your assets.

 Cold wallet storage: Unlike hot wallets, cold wallets (also known as hardware wallets) rely on offline

electronic devices to securely store your private keys.

Typically, cold wallets tend to charge fees, while hot wallets don't.

What can you buy with cryptocurrency?

When it was first launched, Bitcoin was intended to be a medium for daily transactions, making it possible to

buy everything from a cup of coffee to a computer or even big-ticket items like real estate. That hasn’t quite

materialized and, while the number of institutions accepting cryptocurrencies is growing, large transactions

involving it are rare. Even so, it is possible to buy a wide variety of products from e-commerce websites using

crypto. Here are some examples:

1.Technology and e-commerce sites:

Several companies that sell tech products accept crypto on their websites, such as newegg.com, AT&T, and

Microsoft. Overstock, an e-commerce platform, was among the first sites to accept Bitcoin. Shopify, Rakuten,

and Home Depot also accept it.

2.Luxury goods:

Some luxury retailers accept crypto as a form of payment. For example, online luxury retailer Bitdials offers

Rolex, Patek Philippe, and other high-end watches in return for Bitcoin.

3.Cars:

Some car dealers – from mass-market brands to high-end luxury dealers – already accept cryptocurrency as

payment.

4.Insurance:

In April 2021, Swiss insurer AXA announced that it had begun accepting Bitcoin as a mode of payment for all

its lines of insurance except life insurance (due to regulatory issues). Premier Shield Insurance, which sells

home and auto insurance policies in the US, also accepts Bitcoin for premium payments.

If you want to spend cryptocurrency at a retailer that doesn’t accept it directly, you can use a cryptocurrency

debit card, such as BitPay in the US.

Cryptocurrency fraud and cryptocurrency scams:

Unfortunately, cryptocurrency crime is on the rise. Cryptocurrency scams include:

Fake websites: Bogus sites which feature fake testimonials and crypto jargon promising massive, guaranteed

returns, provided you keep investing.

Virtual Ponzi schemes: Cryptocurrency criminals promote non-existent opportunities to invest in digital

currencies and create the illusion of huge returns by paying off old investors with new investors’ money. One
scam operation, BitClub Network, raised more than $700 million before its perpetrators were indicted in

December 2019.

"Celebrity" endorsements: Scammers pose online as billionaires or well-known names who promise to multiply

your investment in a virtual currency but instead steal what you send. They may also use messaging apps or

chat rooms to start rumours that a famous businessperson is backing a specific cryptocurrency. Once they have

encouraged investors to buy and driven up the price, the scammers sell their stake, and the currency reduces in

value.

Romance scams: The FBI warns of a trend in online dating scams, where tricksters persuade people they meet

on dating apps or social media to invest or trade in virtual currencies. The FBI’s Internet Crime Complaint

Centre fielded more than 1,800 reports of crypto-focused romance scams in the first seven months of 2021, with

losses reaching $133 million.

Otherwise, fraudsters may pose as legitimate virtual currency traders or set up bogus exchanges to trick people

into giving them money. Another crypto scam involves fraudulent sales pitches for individual retirement

accounts in cryptocurrencies. Then there is straightforward cryptocurrency hacking, where criminals break into

the digital wallets where people store their virtual currency to steal it.

Is cryptocurrency safe?

Cryptocurrencies are usually built using blockchain technology. Blockchain describes the way transactions are

recorded into "blocks" and time stamped. It's a fairly complex, technical process, but the result is a digital

ledger of cryptocurrency transactions that's hard for hackers to tamper with.

In addition, transactions require a two-factor authentication process. For instance, you might be asked to enter a

username and password to start a transaction. Then, you might have to enter an authentication code sent via text

to your personal cell phone.

While securities are in place, that does not mean cryptocurrencies are un-hackable. Several high-dollar hacks

have cost cryptocurrency start-ups heavily. Hackers hit Coincheck to the tune of $534 million and BitGrail for

$195 million, making them two of the biggest cryptocurrency hacks of 2018.

Unlike government-backed money, the value of virtual currencies is driven entirely by supply and demand. This

can create wild swings that produce significant gains for investors or big losses. And cryptocurrency

investments are subject to far less regulatory protection than traditional financial products like stocks, bonds,

and mutual funds.

Digital Asset Market:

A digital asset is simply content that is stored digitally in any format and their associated value. They are

electronic files of data that can be owned and transferred by individuals and used as a currency to make

transactions or as a way of storing intangible content such as computerised artwork, videos or contracts

documents. A digital asset functions in a way that makes it distinguishable and identifiable through a type of

decentralized database of electronic ledger called a Blockchain.

They can be in the form of digital currencies such as cryptocurrencies e.g. bitcoin or CBDC, or they maybe the

underlying assets that are traded using block chain technology such as non-fungible tokens (NFTs). One of the

key features of digital assets is that they encourage fractional ownership. This means that digital assets could be

created from equity, real estate, commodities or any underlying asset, which has the potential to generate future

benefits and has ownership rights attached, often through tokenisation, a process which involves the creation of

tokens.

Potential benefits of digital assets to the domestic economy:

There are lots of untapped opportunities within the domestic economy that digital assets could unlock and

which would be beneficial to the entire value chain. New forms of value could be created through innovation in

the digital assets market leading to a massive change in the financial landscape of the domestic economy. Some

of the potential benefits include:

01 Asset tokenisation: The fractionalisation of high valued conventional/illiquid assets such as equity

securities, real estate, commodities, loans etc., would offer retail investors greater access to a wider pool of

investments which they could not normally afford to buy, as they can now purchase smaller denominations in

digital token form. This has the potential to drive greater liquidity across the capital markets.

02: Digital assets could provide diversification benefits when added to a portfolio of traditional assets, as

digital assets have historically had low correlations with traditional assets.

03 Convenience of payment services: The Central Bank Digital Currencies (CBDCs), such as the eNaira, have

the ability to achieve faster payments through instant settlements. This would strengthen the competition for

smooth retail and cross-border payment services and help governments to accelerate digital transformation of

their economies.

04 High security and transparency: The transactions of digital assets are recorded on transparent public

ledgers that create an information flow for all transactions done. Therefore, tracking transactions and

establishing audit trails is relatively easy with digital asset transactions.

05 Advancing financial equity and inclusion: The evolutionary technology behind digital assets makes it quite

appealing to drive and possibly achieve greater financial inclusion in the economy. Digital assets can potentially

expand the reach of financial institutions and close gaps by providing opportunities to reduce fees and eliminate

middlemen, as well as attract foreign investors.

06 Reduced cost and complexity: The complexity of existing processes can be reduced with digital assets and

the automation of controls and checks lead to process improvements that reduce cost.

07 Efficiency: Asset digitisation and blockchain technology improves existing transaction processes through

reduced cost, increased transparency and asset liquidity, thereby enabling greater operational efficiency.

Legal position of cryptocurrencies in India:

India being one of the countries that makes the best use of cryptocurrencies the future perspective of digital

currencies stands as the topic of much discussion. RBI has often issues press releases about the security

concerns of cryptocurrencies such as Bitcoin. A committee was also constituted in India 2017 under the

chairmanship of Shri Subhash Chandra Garg to analyse the legal issues associated with virtual currencies. The

Committee Report stated that all private cryptocurrencies should not be allowed in India.

RBI issued a circular In April 2018 preventing commercial and co-operative banks, small finance banks,

payment banks and NBFC from not only from dealing in virtual currencies themselves but also directing them

to stop providing services to all entities which deal with virtual currencies. on My 15 2018, The Internet and

Mobile Association of India (IMAI) filed a writ petition in the Supreme Court for withdrawing RBI Circular.

Supreme court passed a decision, quashing the earlier ban imposed by the RBI.

As a next step government introduced Digital currency bill 2019. Under the bill, Mining, holding, selling,

issuing, transferring or using cryptocurrency is punishable with an imprisonment of up to 10 years . The bill

paved the way for the government to introduce its own digital currency, namely Digital Rupee,' by the Central

Bank.

Under the Bill, Cryptocurrency is defined as any information, code, or token which has a digital representation

of value and has utility in a business activity, or acts as a store of value or a unit of account.[5]

Recently on 29 January 2021, in circular number 2,022, in the E' new bills section under Legislative business,

the Indian government proposed a new bill. The government has listed the new bill that will prohibit all private

cryptocurrencies in India and provide a framework for creation of an official digital currency to be issued by the

Reserve Bank of India. The new bill to be called as The Cryptocurrency and Regulation of Official Digital

Currency Bill 2021, seeks to create a facilitative framework for an official digital currency that will be issued by
the Reserve Bank of India (RBI).

The bill also contains provisions for banning all private cryptocurrencies such as Bitcoin, Ether, and Ripple but

will exempt certain uses and the promotion of the underlying technology of such tenders. In an RBI booklet on

payment systems, the government also mulled the creation of a digital version of India Rupee.

Cryptocurrencies related legal issues are as follows:

 Anonymity of transacting parties

 Problems related to lack of proper authority

 Absence of well defined Laws

 Problems of Tax Evasion, Money laundering etc

 phishing attacks faced by users

 Loss of Data

 Insecurity of trading & purchase platforms etc

It's a fact that most of the people are not rushing to invest in digital currencies considering the face of all the

pitfalls set out above, but there are people who are still looking forward to go with digital currencies by

accepting the element of risk.

Safety and security of Virtual currencies always remains as a question because it does not have any proper

regulatory authority as in ordinary currencies. Cryptocurrencies can be used boldly once if the government sets

out proper legislations to tackle the associated issues. It's always advisable to go through all the ins and outs of

the digital currencies before making an entry to the digital currency league.

Cryptocurrencies are something that can turn out to be very useful for common man if used within the legal
boundaries. Government can come up with a permanent legislation removing all the shortfalls and loopholes

roaming around the digital currency world to increase the credibility of its usage.

Blockchains:

A blockchain is a distributed database or ledger shared among a computer network's nodes. They are best

known for their crucial role in cryptocurrency systems for maintaining a secure and decentralized record of

transactions, but they are not limited to cryptocurrency uses. Blockchains can be used to make data in any

industry immutable—the term used to describe the inability to be altered.

Because there is no way to change a block, the only trust needed is at the point where a user or program enters

data. This aspect reduces the need for trusted third parties, which are usually auditors or other humans that add

costs and make mistakes.

Since Bitcoin's introduction in 2009, blockchain uses have exploded via the creation of various

cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.

 Blockchain is a type of shared database that differs from a typical database in the way it stores

information; blockchains store data in blocks linked together via cryptography.

 Different types of information can be stored on a blockchain, but the most common use for transactions

has been as a ledger.

 In Bitcoin’s case, blockchain is decentralized so that no single person or group has control—instead, all

users collectively retain control.

 Decentralized blockchains are immutable, which means that the data entered is irreversible. For

Bitcoin, transactions are permanently recorded and viewable to anyone.

How Does a Blockchain Work?

You might be familiar with spreadsheets or databases. A blockchain is somewhat similar because it is a
database where information is entered and stored. But the key difference between a traditional database or

spreadsheet and a blockchain is how the data is structured and accessed.

A blockchain consists of programs called scripts that conduct the tasks you usually would in a database:

Entering and accessing information and saving and storing it somewhere. A blockchain is distributed, which

means multiple copies are saved on many machines, and they must all match for it to be valid.

The blockchain collects transaction information and enters it into a block, like a cell in a spreadsheet

containing information. Once it is full, the information is run through an encryption algorithm, which creates a

hexadecimal number called the hash.

The hash is then entered into the following block header and encrypted with the other information in the block.

This creates a series of blocks that are chained together.

Blockchain Decentralization

A blockchain allows the data in a database to be spread out among several network nodes—computers or

devices running software for the blockchain—at various locations. This not only creates redundancy but

maintains the fidelity of the data. For example, if someone tries to alter a record at one instance of the

database, the other nodes would prevent it from happening. This way, no single node within the network can

alter information held within it.

Because of this distribution—and the encrypted proof that work was done—the information and history (like

the transactions in cryptocurrency) are irreversible. Such a record could be a list of transactions (such as with a

cryptocurrency), but it also is possible for a blockchain to hold a variety of other information like legal

contracts, state identifications, or a company’s inventory.

Blockchain Transparency

Because of the decentralized nature of the Bitcoin blockchain, all transactions can be transparently viewed by

either having a personal node or using blockchain explorers that allow anyone to see transactions occurring
live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added. This

means that if you wanted to, you could track a bitcoin wherever it goes.

For example, exchanges have been hacked in the past, resulting in the loss of large amounts of cryptocurrency.

While the hackers may have been anonymous—except for their wallet address—the crypto they extracted are

easily traceable because the wallet addresses are published on the blockchain.

Of course, the records stored in the Bitcoin blockchain (as well as most others) are encrypted. This means that

only the person assigned an address can reveal their identity. As a result, blockchain users can remain

anonymous while preserving transparency.

Is Blockchain Secure?

Blockchain technology achieves decentralized security and trust in several ways. To begin with, new blocks

are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain.

After a block has been added to the end of the blockchain, previous blocks cannot be changed.

A change in any data changes the hash of the block it was in. Because each block contains the previous block's

hash, a change in one would change the following blocks. The network would reject an altered block because

the hashes would not match.

Not all blockchains are 100% impenetrable. They are distributed ledgers that use code to create the security

level they have become known for. If there are vulnerabilities in the coding, they can be exploited.

For instance, imagine that a hacker runs a node on a blockchain network and wants to alter a blockchain and

steal cryptocurrency from everyone else. If they were to change their copy, they would have to convince the

other nodes that their copy was the valid one.

They would need to control a majority of the network to do this and insert it at just the right moment. This is

known as a 51% attack because you need to control more than 50% of the network to attempt it.

cybersecurity
A successful cybersecurity approach has multiple layers of protection spread across the computers, networks,

programs, or data that one intends to keep safe. In an organization, the people, processes, and technology must

all complement one another to create an effective defense from cyber attacks. A unified threat

management system can automate integrations across select Cisco Security products and accelerate key security

operations functions: detection, investigation, and remediation.

People

Users must understand and comply with basic data security principles like choosing strong passwords, being

wary of attachments in email, and backing up data. Learn more about basic cybersecurity principles with

these Top 10 Cyber Tips.

Processes

Organizations must have a framework for how they deal with both attempted and successful cyber attacks.

One well-respected framework can guide you. It explains how you can identify attacks, protect systems, detect

and respond to threats, and recover from successful attacks. Learn about the the NIST cybersecurity framework.

Technology

Technology is essential to giving organizations and individuals the computer security tools needed to protect

themselves from cyber attacks. Three main entities must be protected: endpoint devices like computers, smart

devices, and routers; networks; and the cloud. Common technology used to protect these entities include next-

generation firewalls, DNS filtering, malware protection, antivirus software, and email security solutions.

Why is cybersecurity important?

In today’s connected world, everyone benefits from advanced cyberdefense programs. At an individual level, a

cybersecurity attack can result in everything from identity theft, to extortion attempts, to the loss of important

data like family photos. Everyone relies on critical infrastructure like power plants, hospitals, and financial

service companies. Securing these and other organizations is essential to keeping our society functioning.
Everyone also benefits from the work of cyberthreat researchers, like the team of 250 threat researchers at

Talos, who investigate new and emerging threats and cyber attack strategies. They reveal new vulnerabilities,

educate the public on the importance of cybersecurity, and strengthen open source tools. Their work makes the

Internet safer for everyone.

The Different Types of Cybersecurity

Cyber security is a wide field covering several disciplines. It can be divided into seven main pillars:

1. Network Security

Most attacks occur over the network, and network security solutions are designed to identify and block these

attacks. These solutions include data and access controls such as Data Loss Prevention (DLP), IAM (Identity

Access Management), NAC (Network Access Control), and NGFW (Next-Generation Firewall) application

controls to enforce safe web use policies.

Advanced and multi-layered network threat prevention technologies include IPS (Intrusion Prevention System),

NGAV (Next-Gen Antivirus), Sandboxing, and CDR (Content Disarm and Reconstruction). Also important are

network analytics, threat hunting, and automated SOAR (Security Orchestration and Response) technologies.

2. Cloud Security

As organizations increasingly adopt cloud computing, securing the cloud becomes a major priority. A cloud

security strategy includes cyber security solutions, controls, policies, and services that help to protect an

organization’s entire cloud deployment (applications, data, infrastructure, etc.) against attack.

While many cloud providers offer security solutions, these are often inadequate to the task of achieving

enterprise-grade security in the cloud. Supplementary third-party solutions are necessary to protect against data

breaches and targeted attacks in cloud environments.

3. Endpoint Security
The zero-trust security model prescribes creating micro-segments around data wherever it may be. One way to

do that with a mobile workforce is using endpoint security. With endpoint security, companies can secure end-

user devices such as desktops and laptops with data and network security controls, advanced threat prevention

such as anti-phishing and anti-ransomware, and technologies that provide forensics such as endpoint detection

and response (EDR) solutions.

4. Mobile Security

Often overlooked, mobile devices such as tablets and smartphones have access to corporate data, exposing

businesses to threats from malicious apps, zero-day, phishing, and IM (Instant Messaging) attacks. Mobile

security prevents these attacks and secures the operating systems and devices from rooting and jailbreaking.

When included with an MDM (Mobile Device Management) solution, this enables enterprises to ensure only

compliant mobile devices have access to corporate assets.

5. IoT Security

While using Internet of Things (IoT) devices certainly delivers productivity benefits, it also exposes

organizations to new cyber threats. Threat actors seek out vulnerable devices inadvertently connected to the

Internet for nefarious uses such as a pathway into a corporate network or for another bot in a global bot

network. IoT security protects these devices with discovery and classification of the connected devices, auto-

segmentation to control network activities, and using IPS as a virtual patch to prevent exploits against

vulnerable IoT devices. In some cases, the firmware of the device can also be augmented with small agents to

prevent exploits and runtime attacks.

6. Application Security

Web applications, like anything else directly connected to the Internet, are targets for threat actors. Since 2007,

OWASP has tracked the top 10 threats to critical web application security flaws such as injection, broken

authentication, misconfiguration, and cross-site scripting to name a few. With application security, the OWASP

Top 10 attacks can be stopped. Application security also prevents bot attacks and stops any malicious
interaction with applications and APIs. With continuous learning, apps will remain protected even as DevOps

releases new content.

7. Zero Trust

The traditional security model is perimeter-focused, building walls around an organization’s valuable assets like

a castle. However, this approach has several issues, such as the potential for insider threats and the rapid

dissolution of the network perimeter. As corporate assets move off-premises as part of cloud adoption and

remote work, a new approach to security is needed. Zero trust takes a more granular approach to security,

protecting individual resources through a combination of micro-segmentation, monitoring, and enforcement of

role-based access controls.

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 UNIT III

UNIT III

Digital finance and alternative finance

 1. Digital finance is the delivery of traditional financial services digitally, through devices such as

computers, tablets and smartphones. Digital finance has the potential to make financial services

accessible to underserved populations in areas that lacked physical infrastructure for these services.

Digital finance is the term used to describe the impact of new technologies on the financial services industry. It

includes a variety of products, applications, processes and business models that have transformed the traditional

way of providing banking and financial services. While technological innovation in finance is not new,

investment in new technologies has substantially increased in recent years and the pace of innovation is

exponential. We now interact with our bank using mobile technology. We make payments, transfer money and

make investments using a variety of new tools that were not there few years ago. Artificial intelligence, social

networks, machine learning, mobile applications, distributed ledger technology, cloud computing and big data

analytics have given rise to new services and business models by established financial institutions and new

market entrants.

All these technologies can benefit both consumers and companies by enabling greater access to financial

services, offering wider choice and increasing efficiency of operations. They can also contribute to bringing

down national barriers and spurring competition in areas such as

 online banking, online payment and transfer services

 peer-to-peer lending

 personal investment advice and services

2. Alternative Finance refers to non-traditional ways to finance and deliver development outcomes from

private or public sources. New financial mechanisms and technologies include crowdfunding, social and

development impact bonds, pay-for-success systems, forecast-based financing, and equity-based

investments in social good projects. These approaches are being used to access financing that can

contribute to the achievement of the Sustainable Development Goals.

Alternative finance is a blanket term that refers to any type of financial service managed outside the parameters

of the traditional banking system. These services are driven by fintech and are part of a swiftly growing network

of service providers that are linked to the digital ecosystem. Fintechs utilise the latest technologies, including

AL, ML, blockchain, DL and more, to deliver fast, flexible and secure services for both B2B and B2C

customers.

the main types of alternative finance which technology has helped to develop and could further complement the

traditional markets, focusing on marketplace investing and its perspectives in Europe. It then analyzes financial

return crowdfunding as an application of marketplace investing; its main business models, such as investment-

based and loan-based crowdfunding; and the risks and benefits deriving from them. Next, it compares the

different regulatory models applicable to crowdfunding at EU and member states' levels, distinguishing between

the traditional approach, which extends existing banking or financial regulation to these new sectors, and the

‘innovative’ approach contemplating ad hoc regimes for crowdfunding. The final section suggests a tailored

policy approach to marketplace investing in the Capital Markets Union.

A brief history of innovation

Financial innovation improves institutions’ ability to sustain themselves and reach out to the underprivileged.

As a result, the development of financial markets and the IT sector are closely interconnected. Specifically, they

share a positive correlation. There are two distinct eras in the financial sector’s recent history. The first, from

the 1940s to the 1970s, is characterized by strong control, interventionism, and stability. The second phase,

which started in the 1970s and continued until the subprime mortgage crisis started in 2007, was a period of

deregulation and increasing volatility. As witnessed during the crises in the United States and Japan, the

heightened instability in the second period has its roots in this liberalization coupled with a completely

inadequate regulatory structure. In addition, multiple innovations in payment methods such as credit and debit

cards, transaction processing machines: ATMs, telephone and online banking, automated credit scoring, and

risk management strategies were introduced during the second period-derivatives and securitization.

Types
There are different types of financial innovations discussed below:

 Process Innovations: Innovative financial business processes give clients better services and boost the

effectiveness of business operations. These innovations include new company procedures that boost

productivity and open up new markets, among others. The simplest example is the online banking

facility.

 Financial Institutional Innovations: The advancement of the financial system, which is a prerequisite for

economic growth, depends on innovation. Examples include the establishment of a new organization

providing innovative practices or services. However, creating a regulatory framework that promotes

innovation, globalization, and the growth of the financial sector while maintaining a fair balance

between private and social incentives is challenging.

 Product Innovations: It introduces financial innovation products or instruments such as weather

derivatives and family wealth accounts. Product innovations are released to better adapt to the changing

consumer demand or to increase efficiency.

Advantages

 Financial intermediaries benefit from economies of scale by bundling related financial services that can

be delivered to the customers preferring a conveniently offered suite of products.

 The Internet and mobile technology have drastically increased the ability to inform and interact remotely

between businesses and directly with customers. In addition, technology has increased access and the

efficiency of direct delivery channels, offering lower-cost, tailored financial services and improving

financial inclusion.

 Digital innovation reduces transaction costs and enables various innovative financial services and

business models. The adoption of new technological advancements influences both traditional and

emerging providers. Digital technologies can assist in lowering the costs of information collection,

storage, processing, and exchange.

Financial technology, or fintech, has been transforming the financial services industry in recent years. From

peer-to-peer lending to mobile payments, fintech innovations have been changing the way that customers save,

invest, and manage their money. Let’s explore some of the ways fintech has brought change to one of the

world’s oldest institutions.

1) Peer-to-Peer Lending

Peer-to-peer (P2P) lending platforms, an alternative to traditional bank loans which connect borrowers with

investors, have enjoyed rapid growth in recent years, with the global P2P lending market worth over $147.9

billion in 2022. The growth is being driven by factors such as increasing demand for credit, favourable

regulatory frameworks, and the opportunity for investors to earn higher returns on their investments compared

to traditional savings accounts. The development of new technologies also makes it easier and more efficient to

match borrowers with lenders.

2) Mobile Payments

Allowing customers to make payments via their mobiles, as opposed to cards, has been a hugely popular trend

in the fintech market. The popularity follows the increase in smartphone use in recent years for everyday

activities such as shopping, banking, and communication. According to a report by UK Finance, nearly a third

of all UK adults registered for at least one mobile payment in 2021, and the numbers are continuing to grow.

3) Digital Currencies

Digital currencies, such as Bitcoin and Ethereum, are continuing to make waves as more people explore the

potential of blockchain technology. By enabling users to make transactions without the need for intermediaries

such as banks, blockchain offers superior levels of privacy and security that traditional payment systems

struggle to match.

However, a number of high-profile scandals have significantly impacted the market. According to the UK

government website, as of June 2022, the various cryptocurrencies on offer (numbering over 20,000) were
estimated to be worth a combined value of $929.51 billion. This si down significantly from its November 2021

peak of $3 trillion.

4) Robo-Advisory

Robo-advisory platforms are online investment platforms that use algorithms and artificial intelligence to

manage investors' portfolios. Robo-advisors offer lower fees compared to traditional investment advisors and

are often more accessible to younger investors who may not have the minimum assets required to work with a

traditional advisor.

Digitization of financial services

Implications for Finance

a) The digitization of finance has been spurred by the innovations encompassed in the term fintech. Put

simply, fintech is the collection of technologies whose applications may affect financial services. This

includes artificial intelligence, big data, biometrics, and distributed ledger technologies such as

blockchains.

b) Fintech offers the promise of faster, cheaper, more transparent and user-friendly financial services. It

raises the prospect of expanding financial inclusion, especially in developing countries. The possibilities

are exciting.

c) Companies working with artificial intelligence are exploring credit scoring based on payment data.

Fintech startups in Latin America, Africa, and Asia are moving toward the use of peer-to-peer lending

data, and information from mobile phone payments to build reliable credit databases.

d) Another area under development is “smart contracts” that could allow the more secure and faster

settlement of financial market transactions. These contracts use software to enable automatic triggers

that allow transactions without human intervention.

 e) In the realm of lending, small- and medium-sized enterprises could gain greater access to financing and

investment opportunities as costs and other barriers to entry are lowered. One example is a Fintech

Challenge in Sierra Leone. The central bank of that African country and the UN are encouraging local

and regional efforts to develop fintech-based apps to facilitate credit to farmers in remote areas.

f) But there inevitably will be risks. Financial stability could be affected—through disruptions to existing

service providers and business models. Unregulated sectors could create additional operational risks

related to cybercrime and outsourcing.

g) The 2016 cyber-attack on the central bank of Bangladesh is a case in point: hackers gained access to the

bank’s SWIFT codes and transferred millions of dollars from its account at the Federal Reserve Bank of

New York.

h) New technologies and new forms of intermediation may upset the balance between transparency and

privacy. The recent Facebook-Cambridge Analytica case underlined the need for clear rules governing

privacy and data ownership. Ethical concerns are just as important as legal guidelines when it comes to

individual users.

Fintech and funds

The most talked-about (and most funded) fintech startups share the same characteristic: They are designed to

challenge, and eventually take over, traditional financial services providers by being more nimble, serving an

underserved segment of the population, or providing faster or better service. For example, financial company

Affirm seeks to cut credit card companies out of the online shopping process by offering a way for consumers

to secure immediate, short-term loans for purchases. While rates can be high, Affirm claims to offer a way for

consumers with poor or no credit a way to secure credit and build their credit history.

Similarly, Better Mortgage seeks to streamline the home mortgage process with a digital-only offering that can

reward users with a verified pre-approval letter within 24 hours of applying. GreenSky seeks to link home

improvement borrowers with banks by helping consumers avoid lenders and save on interest by offering zero-

interest promotional periods.For consumers with poor or no credit, Tala offers consumers in the developing
world microloans by doing a deep data dig on their smartphones for their transaction history and seemingly

unrelated things, such as what mobile games they play. Tala seeks to give such consumers better options than

local banks, unregulated lenders, and other microfinance institutions.

In short, if you have ever wondered why some aspect of your financial life was so unpleasant (such as applying

for a mortgage with a traditional lender) or felt like it wasn’t quite the right fit, fintech probably has (or seeks to

have) a solution for you.

Since the mid-2010s, fintech has exploded, with startups receiving billions in venture funding (some of

which have become unicorns) and incumbent financial firms either snatching up new ventures or

building out their own fintech offerings.

North America still produces most of the fintech startups, with Asia a relatively close second, followed by

Europe. Some of the most active areas of fintech innovation include or revolve around the following areas

(among others):

 Cryptocurrency (Bitcoin, Ethereum, etc.), digital tokens (e.g., non-fungible tokens, or NFTs), and digital

cash. These often rely on blockchain technology, which is a distributed ledger technology (DLT) that

maintains records on a network of computers but has no central ledger. Blockchain also allows for so-

called smart contracts, which utilize code to automatically execute contracts between parties such as

buyers and sellers.

 Open banking, which is a concept that proposes that all people should have access to bank data to build

applications that create a connected network of financial institutions and third-party providers. An

example is the all-in-one money management tool Mint.

 Insurtech, which seeks to use technology to simplify and streamline the insurance industry.

 Regtech, which seeks to help financial service firms meet industry compliance rules, especially those

covering Anti-Money Laundering and Know Your Customer protocols that fight fraud.

 Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost

and increase accessibility. This is one of the most common areas where fintech is known and used.
  Unbanked/underbanked services that seek to serve disadvantaged or low-income individuals who are

ignored or underserved by traditional banks or mainstream financial services companies. These

applications promote financial inclusion.

 Cybersecurity. Given the proliferation of cybercrime and the decentralized storage of data, cybersecurity

and fintech are intertwined.

 AI chatbots, which rose to popularity in 2022, are another example of fintech’s rising presence in day-

to-day usage

Fintech Users

There are four broad categories of users for fintech:

1. Business-to-business (B2B) for banks

2. Clients of B2B banks

3. Business-to-consumer (B2C) for small businesses

4. Consumers

Crowdfunding

Crowdfunding is a way of raising money to finance projects and businesses. It enables fundraisers to collect

money from a large number of people via online platforms.

Crowdfunding is most often used by startup companies or growing businesses as a way of accessing alternative

funds. It is an innovative way of sourcing funding for new projects, businesses or ideas.

It can also be a way of cultivating a community around your offering. By using the power of the online

community, you can also gain useful market insights and access to new customers.

This guide is aimed at entrepreneurs, businesspeople and companies, especially small and medium

enterprises. If you are thinking about ways of financing a new business or idea, or have heard about

crowdfunding and want to learn more, you may find this guide useful.

How does crowdfunding work?

 Crowdfunding platforms are websites that enable interaction between fundraisers and the crowd.

Financial pledges can be made and collected through the crowdfunding platform.

 Fundraisers are usually charged a fee by crowdfunding platforms if the fundraising campaign has been

successful. In return, crowdfunding platforms are expected to provide a secure and easy to use service

 Many platforms operate an all-or-nothing funding model. This means that if you reach your target you

get the money and if you don’t, everybody gets their money back – no hard feelings and no financial

loss.

 There are a number of crowdfunding types which are explained below. This guide provides unbiased

advice to help you understand the three most common types of crowdfunding used by profit-making

SMEs and startups: peer-to-peer, equity and rewards crowdfunding.

Types of Crowd funding The two most traditional uses of the term reflect the type of crowdfunding done by

start-up companies looking to bring a product or service into the world and by individuals who experienced

some type of emergency. Many individuals affected by a natural disaster, hefty medical expense, or another

tragic event such as a house fire have received an amount of financial relief they wouldn't otherwise have had

access to thanks to crowdfunding platforms.

 1) Rewards Crowdfunding

Rewards-based crowdfunding is the most common type of crowdfunding option available. This type of

crowdfunding involves setting varying levels of rewards that correspond to pledge amounts. A standard rewards

campaign offers at least three levels of pledges/rewards. Rewards campaigns tend to work well for client-facing,

tangible products who require less than $100,000 in funding and typically last for 1-3 months.

2) Equity Crowdfunding

Equity crowdfunding is on the rise after the signing of the Jumpstart Our Business Startups (JOBS) Act in April

of 2012. Equity crowdfunding is the exchange of actual shares in a private company for capital. In this form of

crowdfunding, entrepreneurs can set investor caps, minimum pledge amounts, etc. as well as approve or deny

investors who wish to view their business documents. Equity campaigns are typically several months or longer

in length and fit well with startups seeking $100,000 or more in funding.

3) Donation Crowdfunding

Donation crowdfunding is exactly what it sounds like - the campaigns amass donations without being required

to provide anything of value in return. This type of campaign serves social causes and charities best. Donation

campaigns are often 1-3 months in length and work well for amounts under $10,000.

4) Lending Crowdfunding

Lending based crowdfunding allows entrepreneurs to raise funds in the form of loans that they will pay back to

the lenders over a pre-determined timeline with a set interest rate.

Lending campaigns tend to take place over a shorter timespan of around five weeks and works well for

entrepreneurs who don’t want to give up equity in their startup immediately.

ng instead.

Benefits of crowdfunding

Here are some of the potential benefits of crowdfunding:

  Business flexibility: Traditional investors may expect to have input for business decisions, and

crowdfunding allows entrepreneurs to source their funding elsewhere. This may offer them the

opportunity to take more unconventional business routes for faster growth.

 Large donor pool: Because crowdfunding draws monetary support from many sources, your

organization may have a better chance of finding support and reaching its funding goals.

 Marketing: Many crowdfunding platforms provide advertising for campaigns, which can help you use

crowdsourcing to market your company, product or service.

 Fast funding: If many people are interested in your product or service, and the public invests in your

project, you may receive sizable sums quickly. Fast funding allows organizations to scale their

operations and increase production or development speed.

 it can be a fast way to raise finance with no upfront fees

 pitching a project or business through the online platform can be a valuable form of marketing and result

in media attention

 sharing your idea, you can often get feedback and expert guidance on how to improve it

 it is a good way to test the public's reaction to your product/idea - if people are keen to invest it is a good

sign that the your idea could work well in the market

 investors can track your progress - this may help you to promote your brand through their networks

 ideas that may not appeal to conventional investors can often get financed more easily

 your investors can often become your most loyal customers through the financing process

 it's an alternative finance option if you have struggled to get bank loans or traditional funding

Disadvantages of crowdfunding

Here are some potential drawbacks of crowdfunding:

  The campaign needs a compelling story. Your product, mission or service must appeal to the public to

gain support. Investing in professional help to tell your story or create persuasive campaign material can

make your campaign successful amidst the competition.

 Crowdfunding is more independent. Traditional investors may be able to offer guidance and support for

entrepreneurs and small businesses. You may want to invest in business guidance elsewhere when using

crowdfunding.

 It requires constant activity. When crowdfunding, it's important that you can stay online frequently to

promote your campaign, thank donors and engage with potential contributors. If you are working with a

team, consider assigning shifts to these duties to reduce burnout or lapses in online presence.

 Specific rules and regulations. Depending on the state you live in and the crowdfunding platform you

use, there may be regulations limiting the amount of funding you can receive or rules about how you can

use it.

 it will not necessarily be an easier process to go through compared to the more traditional ways of

raising finance - not all projects that apply to crowdfunding platforms get onto them

 when you are on your chosen platform, you need to do a lot of work in building up interest before the

project launches - significant resources (money and/or time) may be required

 if you don't reach your funding target, any finance that has been pledged will usually be returned to your

investors and you will receive nothing

 failed projects risk damage to the reputation of your business and people who have pledged money to

you

 if you haven't protected your business idea with a patent or copyright, someone may see it on a

crowdfunding site and steal your concept

 getting the rewards or returns wrong can mean giving away too much of the business to investors

Regards, Charity and Equity Crowdfunding

Regards-based crowdfunding
Rewards-based, or seed, crowdfunding is a type of small-business financing in which entrepreneurs solicit

financial donations from individuals in return for a product or service. There are about 19 times as many

rewards campaigns as there are for its closely related counterpart, equity-based crowdfunding.

Rewards-based crowdfunding is a business and project financing method where business owners solicit funds

from a large number of people in return for a non-financial reward. This fundraising method results in a win-

win proposition for both the donors and fundraisers. The fundraisers get the funds they require to build their

projects or businesses. On the other hand, the donors receive goods or services based on their amount of

investment in the project or business.Usually, rewards-based crowdfunding is the practice of securing orders for

a business or project before launching a new offering and building the customer base while the business raises

funds. Not only funds, but crowdfunding also brings a good cause to the donors. They tend to support a

developing project or business and give it the needed initial push it requires to set its base. For a reward, the

business can offer anything ranging from the product or service they wish to offer in future or unique

experiences like exclusive access to events, parties, conferences, webinars, etc. It can even include simple

rewards like recognition on the website or artist offering, etc. Moreover, as the pledged amount increases, the

value of the reward offered also increases.

Who Can Grant Funds?

Anyone can contribute and back up the organisation by funding it. Usually, entrepreneurs launch projects on

specialised crowdfunding platforms where potential customers are targeted with attractive rewards. Moreover,

strategies like scarcity principle, FOMO, etc., are used to make the fundraiser attractive to the potential funder.

Work of Reward-Based Crowdfunding

To raise capital, entrepreneurs usually display their objectives, business ideas, and projects on online

crowdfunding platforms like Republic, Kickstarter and Indiegogo. The fundraising process involves four steps:

1. The entrepreneur lists a project or business to be funded on a crowdfunding platform. They mention the

rewards, timeline, and the deadline for the fundraiser.

 2. The entrepreneur markets the fundraiser on social media and other marketing channels. They usually

target potential customers who could be triggered by FOMO and the scarcity principle to fund the

business and try out the offering.

3. Interested funders contribute to the project, and the amount is added to the fund after charging the

platform’s fees.

4. The contributors are rewarded based on their contribution amount. The rewards are mainly divided into

four categories:

5. Pre-orders: Pre-orders refer to ordering and paying for the offering before it is launched in the market.

6. Actual Offering: It can be an actual offering offered in tiers according to the contributed amount.

7. Services: It includes the entrepreneurs providing special services in exchange for support. Such services

could range from one-to-one consultations to offering to write code for the supporters.

8. Recognition: Contributors receive certain acknowledgements for their grants. The company can display

their name on their website, mentioning them as contributors or send them a T-shirt for the particular

campaign.

Regards-Based Crowdfunding Platforms

Technically, rewards-based crowdfunding found its way in the fundraising scenario only after the advent of the

internet and certain crowdfunding platforms like the following:

 Kickstarter: It is a fundraising platform for creative and artistic projects. Individuals ranging from

different fields, including music, art, technology, dance, games, utilise this platform for backing their

projects. If the fundraising goal is successfully achieved, 3-5% of the total amount raised will be charged

to a fee. However, if the campaign is unsuccessful, there will be no fee, and the organisation would have

to surrender any amount raised.

 Indiegogo: Indigogo is also one of the first crowdfunding platforms to emerge in the USA. It mainly

allows individuals to solicit funds for startups, charity or any business venture. Unlike most, this site
 allows one to keep the funds generated whether the initial summoned amount has been achieved or not.

It charges 5% of the amounts raised instead of the goal decided.

 Republic: Republic enables people to invest in vetted private startups in return for equity and specific

rewards. While not entirely a rewards-based crowdfunding platform, there are tiers where all investors

get is a reward to invest in a startup. The platform collects 6% of the total amount raised and 2% of

securities offered in successful financing.

Challenges to rewards-based crowdfunding

 Unsuitable for early-stage companies: Fundraising through this method is essentially suitable to small

startups and businesses at their initial stages

 Unsuitable for large funding: As businesses rely on individual donations, rewards-based crowdfunding

might not be the best option for those seeking large funding rounds.

 All or nothing policy limitation: the platforms sourcing the funding generally operate with an all or

nothing policy. The company will have access to the funds only if the whole amount summoned is

generated, otherwise, it would have to forfeit the whole amount.

Advantages of Reward-based Crowdfunding:

1. Quick way to raise capital: Reward-based crowdfunding is a fast and efficient way to raise money for a

project. Unlike traditional forms of raising capital, such as venture capital or angel investment, reward-based

crowdfunding can be completed in weeks. This is especially beneficial for projects that must be funded quickly

to meet a deadline.

2. Low-cost: Reward-based crowdfunding campaigns are inexpensive to launch and operate. There are usually

no upfront costs, and the only fees associated with the campaign are typically taken from the money raised. This

makes it a very attractive and affordable option for people with limited resources who need to raise funds.
3. Engagement: Reward-based crowdfunding campaigns are a great way to engage potential customers and

create a buzz about a product. The rewards offered for successful campaigns can be used as marketing tools to

reach a wider audience and increase sales.

4. Validation: A successful reward-based crowdfunding campaign is a great way to validate a product idea or

concept. Supporters are placing a vote of confidence in the project, and their money is a sign that they believe in

it. This can be a powerful tool for entrepreneurs looking to attract investors or other forms of funding.

Charity-Based Crowdfunding

Definition of charity-Based Crowdfunding

Charity-based crowdfunding is a way to source money for a project by asking a large number of contributors to

individually donate a small amount to it. In return, the backers may receive token rewards that increase in

prestige as the size of the donation increases. For the smallest sums, however, the funder may receive nothing at

all.

Sometimes referred to as rewards crowdfunding, the tokens for donations may include pre-sales of an item to be

produced with the funds raised. Donation-based crowdfunding can also be used in an effort to raise funds for

charitable causes. Because this sort of crowdfunding is predicated on donations, funders do not obtain any

ownership or rights to the project—nor do they become creditors to the project.

Charity-Based Crowdfunding Works

If an entrepreneur or inventor has a great idea for a new product or service, crowdfunding offers an alternative

way to raise money, as opposed to traditional methods of borrowing money through banks or private loans or by

offering equity shares. Through donation-based crowdfunding, the entrepreneur can pre-sell their product to a

large number of backers who each donate a relatively small sum toward the project. To encourage higher

donation amounts, the entrepreneur may also offer token rewards of increasing value or significance, while

retaining full ownership of the project or company being funded.

Examples of donation-based crowdfunding platforms include Kickstarter, Indiegogo, CrowdFunder, and

RocketHub. Donation-based crowdfunding platforms aimed at fundraising for charitable causes include

GoFundMe, YouCaring.com, GiveForward, and FirstGiving. Typically, these services take a 5%–10% fee of all

donations.

Different Uses for Crowdfunding

Charities might look to crowdfunding as a means to gather support for relief efforts or causes the organization is

championing. For example, disaster relief charities may seek funds to aid in the search, rescue, recovery, and

treatment of individuals affected by devastating storms or earthquakes. There may be campaigns for specific

needs such as funding the transport of food and clothing to the disaster area. The donations may be sought to

support the construction of temporary shelters or the procurement of medical supplies. Crowdfunding might

also be used to pay for the reconstruction of infrastructure and utilities that would not otherwise be covered by

government disaster funds.

8 Powerful Crowdfunding Platforms for Nonprofit Fundraising

There are plenty of crowdfunding sites specifically for nonprofits, such as Fundly and CauseVox. All have

different features and pricing. Do your research and see which nonprofits are using certain platforms and why.

Here are some widely popular crowdfunding platforms:

1. Donorbox

Donorbox is introducing its crowdfunding feature in supporting nonprofits to further engage donors and

potential donors. Donorbox is widely popular with nonprofits in various spaces- education, museums, churches,

animal welfare among many others. The crowdfunding feature lets nonprofits customize the crowdfunding

page, send customized email updates, add compelling media. Nonprofits can share updates and messages on

their crowdfunding page and anyone can sign up for their email updates. The platform also provides a donor

wall- acknowledging all donations.

Pricing:

Priced lowest in the market with 1.5% of monthly donations plus transaction fees.

Pros:

 Efficient software for fundraising and crowdfunding campaigns

 Affordable and easy to use

 It Integrates with Zapier, Salesforce, and Mailchimp and PayPal, Stripe for payments.

 Offers multiple currencies, languages, and payment options

 Powerful donor management system

Cons:

Customer support is great on email compared to phone support.

2. Fundly

Fundly is about functionality and customization, with the main focus on digital donations. Those who donate

can share the campaign with their social media to help reach potential donors. You can also customize your

donation page with media, so your campaign will look exactly how you imagined and will be branded to your

organization.

Pricing:

Platform fee of 4.9 percent, a credit card processing fee of 2.9%, and a $0.30 per-transaction fee.

Pros:

 Great for crowdfunding

 Excellent email support

 Superfast transfer of funds.

Cons:

 High platform fees

 Offers limited reach to beginners

3. Classy

Classy is a very popular platform that is based on making the crowdfunding process easy for nonprofits. Their

website also offers resources for nonprofits, such as guides, webinars, and Giving Tuesday resources. Educating

nonprofits is near and dear to Classy’s core. All prices are customizable – answer some questions about you and

your nonprofit, and someone from Classy will get in touch with you to discuss pricing options.

Pricing:

Classy pricing starts at $199.00 per month with additional transaction fees.

Pros:

 Easy customization

 Great customer service

 Easy Peer-to-Peer Fundraising

Cons:

 It is a pricy option compared to its alternatives.

4. CauseVox

CauseVox backs up their success by focusing on the stats. Did you know that in the past two years, there’s been

a 24 percent growth in online donations? Or that in 2018, mobile giving increased by an astonishing 205

percent? The point: CauseVox understands the importance of digital donations.

Pricing:
CauseVox has three packages: Basic, Standard ($139/month), and Plus ($245/month). The basic plan has no

cost per month, and there is a 0% platform fee.

Pros:

 Peer to peer campaigning

 Integrates with stripe, salesforce, PayPal, Mailchimp, Google analytics, and various other software.

Cons:

 High Platform Fee

 UI improvements are needed.

5. Donately Donately is hip to the system. Similar to other platforms, Donately allows custom forms,

fundraising pages, and donor management capabilities. Where they take it up a notch: they have a text

messaging platform. This can help with increasing donations and peer-to-peer fundraisers, among other positive

effects.

Pricing:

Donately Team plan is priced at $49 per month with a 2% platform fee. You can also customize your plan with

the Donately enterprise pricing option.

Pros:

 Donately is easy to set-up and navigate

 user-friendly interface

 Affordable

Cons:

 Limited donation tracking and donor outreach tools

6. Chuffed

Chuffed has done more than 7900 campaigns globally. Their unique optional donation model, which helps the

campaigners to receive the funds in their bank accounts without any charges. Incredible transparency is the core

of this platform, and they follow the “keep it all” approach. Hence, many campaigners are turning towards

chuffed to receive all their raised funds without any deduction. Chuffed is also known for its generosity because

they are not only dedicated to operating as a crowdfunding platform but also serve the value of kindness to their

donor fraternity.

Pricing:

Chuffed is priced at 2.00% of monthly donations with $0.20 processing fees.

Pros:

 Chuffed is free to start

 It provides multiple crowdfunding pages for a single campaign.

 You can keep all amounts raised without reaching the fundraising goal.

Cons:

 The upfront cost has to be paid by donors.

 Page customization is limited.

 Customer service is not up to the mark.

7. Salsalabs

Salsa labs manage online fundraising, peer to peer campaigning, online advocacy, email marketing, and social

media promotion. It is one of the unique software that merges support engagement and relationship

management with outstanding online support in its flagship suite. With all the efforts and excellence, salsa is

known for its fantastic track record, rich user experience, and happy clients.
Pricing:

Salsalabs provides custom pricing based on different types of fundraising needs.

Pros:

 User-friendly CRM

 Award-winning customer support

 New features are added consistently.

Cons:

 The upfront cost is high.

 Migration of accounts is challenging.

 Email marketing is less responsive.

8. GoFundMe

With its fast, friendly, and flexible service, GoFundMe has gained a massive amount of trust in the

crowdfunding industry. The impeccable customer support is the backbone of this platform which quickly

responds to the questions and concerns of the users with immediate solutions. A robust platform, empathetic

support team, and professional user experience are what make GoFundMe unique and special. It is the plug and

plays model of the crowdfunding ecosystem, which is gaining immense popularity all over the world.

Pricing:

GoFundMe lets you start for free, charging up to 2.2% of monthly donations with a $0.30 processing charge.

Pros:

 Customer support is super responsive.

 Easy to use and easy to set up.

 Clean interface to attract a vast number of users.

Cons:

 GoFundMe is more expensive than other platforms.

 API integrations are limited

Pro Tip: There are tens of different platforms that you can use, so do thorough research prior to picking out a

platform. Key things to consider: visual layout, ease in customizing the platform, platform fees, and credit

card/transaction fees.

Benefits of Nonprofit Crowdfunding

With COVID-19, in-person events are no longer an option. This can be troublesome for nonprofits that rely on

events and face-to-face meetings. With a little creativity, a clear goal in mind, and a clean interface,

crowdfunding can replace the crucial in-person events you’re missing.

 The Bandwagon Effect- People are usually more prone to contribute money if they see that many others

are already doing it.

 It is cost-effective- Crowdfunding is generally cheaper and more cost-effective than other sources of

fundraising. It is a fast way to raise funds without any upfront fees.

 Marketing- Crowdfunding is also a valuable form of crowdfunding and can result in media attention.

 Alternate source of fundraising- crowdfunding is an alternate source of fundraising if you have a hard

time getting loans.

 Testing crowd reactions- Crowdfunding is also a great way to test if your idea works and get valuable

feedback.

Advantages of Donation-based Crowdfunding:

1. Low Risk: Donation-based crowdfunding does not require any repayment of funds, so there is no financial

risk for the donor. This makes it a great way to raise funds for projects needing help securing a loan or

traditional investment.
2. Quick: Donation-based crowdfunding campaigns can be set up quickly and easily, allowing organisations or

individuals to get the funds they need quickly and efficiently.

3. Access to a Wide Network: Donation-based crowdfunding campaigns allow organisations to access a vast

network of potential donors. This can increase donations and spread awareness of the organisation and its cause.

4. Increased Visibility: Donation-based crowdfunding campaigns can help to increase visibility for the

organisation, its cause, and the project they are working on.

5. Access to Funds: Donation-based crowdfunding can provide access to funds that may otherwise be difficult

to obtain from traditional sources.

6. Low Barrier to Entry: Donation-based crowdfunding is one of the most straightforward and accessible types.

Unlike other forms of crowdfunding, it does not require a complicated setup and can be launched with minimal

effort.

Equity based crowdfunding

Equity crowdfunding is a method of raising capital online from investors in order to fund a private business. In

return for cash, investors receive equity ownership in the business. Equity crowdfunding happens on online

platforms where businesses create profiles that include their pitches, financial statements and other information.

Crowdfunding platforms may charge a percentage of funds raised for their services; many charge a monthly

listing fee; some charge additional payment processing fees. You might also need to pay for services, such as

accounting, to get the paperwork in order..

Benefits of equity crowdfunding

Selling shares of your company is an alternative to a business loan. Equity crowdfunding can also be an option

for businesses with strong growth potential. But as with any type of funding, it has its pros and cons:
Pros of equity crowdfunding

 Selling shares to multiple investors may raise more cash.

 Equity platforms may pool the funds into a single investment, streamlining the accounting and financial

reporting.

 No loan repayments or debt-related credit checks required.

 Potential buzz about your business and connections to potential customers.

Cons of equity crowdfunding

 Selling part of your business could be problematic if investors want a say in your operations.

 You’ll need to spend time creating a persuasive presentation that includes marketing plans, financial

projections and even a video that communicates the value of your idea.

 You have to comply with state and federal security filing rules. You also have a fiduciary duty to tell

shareholders about the health of the company.

features

 You will have to set the terms, and choose how much you want to sell, the price and how investors will

be rewarded. It requires good expertise to value a venture correctly.

 The fees payable for raising equity finance on the crowdfunding platform will typically be a success fee

and legal or administrative fees related to the issue. You may incur additional legal and advisory fees.

 Many people can invest, so you can have lots of small co-owners, instead of few large investors. It is

usually less costly than being listed on the stockmarket.

 You need to show that your business is investment-ready, thus you need to produce a business plan and

financial forecasts. You should also have a good communication strategy, with the most important

information about your project readily available and easily understandable to potential investors.

 Due diligence is usually carried out by the platform and the investor may have the option to ask for more

information, and you should be prepared to provide this information even if it comes at additional costs

to you.

 There are serious legal aspects, the costs of which you should not ignore, such as disclosure and legal

documents, annual general meetings with shareholders, processing corporate rights, annual reports and

decision procedures.

 Investors’ rights can vary. However, typically shareholders have voting rights on key matters of running

the business, issuing new shares, etc. You should consider how much of the control rights over your

business you are ready to give to external shareholders. As regards compensation, be aware that

investors may claim damages to compensate money loss incurred, for instance as a result of breach of

contract.

How Equity Crowdfunding Works

Equity crowdfunding is also called regulation crowdfunding because it is regulated by the federal

government. Even though you’re not selling shares on a stock exchange, your business is still offering

equity to investors in exchange for capital. As a result, the process entails more rules than you would

encounter with a simple online fundraising campaign like GoFundMe or Kickstarter.

If you want to use equity crowdfunding to raise capital for your business, following the rules is critical.

Otherwise, you could face some unpleasant consequences. For example, failure to follow the rules might

force you to refund any investments you receive. In some cases, the U.S. Securities and Exchange

Commission (SEC) might even freeze your business’ ability to offer shares to investors for a period of time.

Below are a few of the steps you’ll need to complete in order to sell business shares through an online

crowdfunding platform.
  Work with an SEC-registered broker-dealer (aka a funding portal) to process any investment

transactions

 Accept no more than $5 million per year in crowdfunding investments

 Follow federal limitations on the amount you accept from individual, nonaccredited investors in a 12-

month period (amounts vary based on income)

 Make any necessary financial disclosures public, based on the amount of funding your business raises

Beyond the legal concerns, you’ll also need to design a compelling campaign if you hope to energize the

public and convince others to invest in your business. A good equity crowdfunding campaign should

communicate key details to potential investors, including:

 The amount of money you need to raise

 How you plan to use the funds

 Your target customers

 Your profit margin

 What makes your business different from competitors

 Why investors should back you

Equity Crowdfunding Platforms

Whether you’re an investor looking to inject capital into a startup or a founder needing to raise capital, a

crowdfunding platform is a great marketplace to find prospects. However, not all equity crowdfunding sites are

created equal.
For instance, some sites only accept accredited investors, while others accept non-accredited investors. Security,

ease of enrollment, user interface, and registration fees are other factors to consider. Generally, it’s

recommended to go with the most reputable platforms to ensure ease of use and security.

1. AngelList

AngelList is one of the oldest and most well-known equity crowdfunding sites. It was initially established to

pair business owners and angel investors. You can browse individual company offerings, which are vetted by

the site. Investors can also partner with an investor syndicate—a group of investors that a renowned veteran

investor usually leads. The syndicate pools money to finance companies—minimum investments are $1,000.

2. Fundable

Fundable offers both perks-based and equity crowdfunding. The website’s strength is its intuitive company

profile builder—good for companies that are serious about hitting their target fundraising goals. Know that the

site doesn’t actually facilitate transactions—all transactions must occur outside the platform. Investment

minimums tend to be around $1,000.

3. Microventures

Microventures is one of the oldest equity crowdfunding platforms that caters to both accredited and non-

accredited investors. This full-service investment bank offers a wide variety of industries and skews toward

consumer-facing businesses. You can find opportunities in high-growth industries such as cannabis and

biotechnology.

Non-accredited investors can get started for as low as $100. Accredited investors have access to more exclusive

offerings with much higher minimums.

4. Republic

If you’re looking to dabble in crowdfunding without taking on too much risk, Republic presents a good option.

Investors can find crowdfunded deals for as little as $10.

On the other hand, the average holding period is roughly four to six years. If you’re looking for short-term

investment opportunities, you may want to look elsewhere.

Investors can find deals in sectors such as startups, video games, real estate, and cryptocurrency.

5. StartEngine

If you’re a fan of Shark Tank, then you may already be aware of StartEngine. Kevin O’Leary, popularly known

as “Mr. Wonderful,” serves as the face and strategic advisor of this platform.

Investors can get in for under $500 and enjoy free product or service access. The platform also offers equity

rewards and bonuses to loyal investors. StartEngine also offers a secondary market if you decide to sell shares.

Peer-to-Peer (P2P)

A peer-to-peer (P2P) service is a decentralized platform whereby two individuals interact directly with each

other, without intermediation by a third party. Instead, the buyer and the seller transact directly with each

other via the P2P service. The P2P platform may provide services such as search, screening, rating, payment

processing, or escrow.

 A peer-to-peer service is a platform that directly connects parties to a transaction without the third-party

intermediary.

 Peer-to-peer services leverage technology to overcome the transaction costs of trust, enforcement, and

information asymmetries that have traditionally addressed by using trust third parties.

 Peer-to-peer platforms offer services such as payment processing, information about buyers and sellers,

and quality assurance to their users.

Examples of Peer-to-Peer (P2P) Services

 Open-source Software
Anybody can view and/or modify code for the software. Open-source software tries to eliminate the central

publisher/editor of software by crowdsourcing the coding, editing, and quality control of software among

writers and users.

 Filesharing

Filesharing is where uploaders and downloaders meet to swap media and software files. In addition to peer-to-

peer networking, filesharing services can provide scanning and security for shared files. They may also offer

users the ability to anonymously bypass intellectual property rights or alternatively may provide enforcement

for intellectual property.

 Online Marketplaces

Online marketplaces consist of a network for private sellers of goods to find interested buyers. Online market

places can offer promotion services for sellers, ratings of buyers and sellers based on history, payment

processing, and escrow services.

 Cryptocurrency and Blockchain

A blockchain is an aspect of cryptocurrency technology. It is a network where users can make payments,

process, and verify payments without a central currency issuer or clearinghouse. Blockchain technology allows

people to transact business using cryptocurrencies and to make and enforce smart contracts.

 Homesharing

Homesharing allows property owners to lease all or part of their property to short-term renters. Homesharing

services typically provide payment processing, quality assurance, or rating and qualification of owners and

renters.

 Ridesharing
Ridesharing is a platform for car owners to offer chauffeur service for people seeking a taxi ride. Ridesharing

platforms offer similar services as homesharing services.

Types of P2P networks

1. Unstructured P2P networks: In this type of P2P network, each device is able to make an equal

contribution. This network is easy to build as devices can be connected randomly in the network. But

being unstructured, it becomes difficult to find content. For example, Napster, Gnutella, etc.

2. Structured P2P networks: It is designed using software that creates a virtual layer in order to put the

nodes in a specific structure. These are not easy to set up but can give easy access to users to the content.

For example, P-Grid, Kademlia, etc.

3. Hybrid P2P networks: It combines the features of both P2P networks and client-server architecture. An

example of such a network is to find a node using the central server.

P2P Network Architecture

In the P2P network architecture, the computers connect with each other in a workgroup to share files, and

access to internet and printers.

 Each computer in the network has the same set of responsibilities and capabilities.

 Each device in the network serves as both a client and server.

 The architecture is useful in residential areas, small offices, or small companies where each computer

act as an independent workstation and stores the data on its hard drive.

 Each computer in the network has the ability to share data with other computers in the network.

 The architecture is usually composed of workgroups of 12 or more computers.

P2P Network Efficiency

Firstly secure your network via privacy solutions. Below are some of the measures to keep the P2P network

secure:

 Share and download legal files: Double-check the files that are being downloaded before sharing them

with other employees. It is very important to make sure that only legal files are downloaded.

 Design strategy for sharing: Design a strategy that suits the underlying architecture in order to manage

applications and underlying data.

 Keep security practices up-to-date: Keep a check on the cyber security threats which might prevail in

the network. Invest in good quality software that can sustain attacks and prevent the network from being

exploited. Update your software regularly.

 Scan all downloads: This is used to constantly check and scan all the files for viruses before

downloading them. This helps to ensure that safe files are being downloaded and in case, any file with

potential threat is detected then report to the IT Staff.

 Proper shutdown of P2P networking after use: It is very important to correctly shut down the

software to avoid unnecessary access to third persons to the files in the network. Even if the windows

are closed after file sharing but the software is still active then the unauthorized user can still gain access

to the network which can be a major security breach in the network.

Applications of P2P Network

Below are some of the common uses of P2P network:

 File sharing: P2P network is the most convenient, cost-efficient method for file sharing for businesses.

Using this type of network there is no need for intermediate servers to transfer the file.

 Blockchain: The P2P architecture is based on the concept of decentralization. When a peer-to-peer

network is enabled on the blockchain it helps in the maintenance of a complete replica of the records

ensuring the accuracy of the data at the same time. At the same time, peer-to-peer networks ensure

security also.

 Direct messaging: P2P network provides a secure, quick, and efficient way to communicate. This is

possible due to the use of encryption at both the peers and access to easy messaging tools.

 Collaboration: The easy file sharing also helps to build collaboration among other peers in the

network.

 File sharing networks: Many P2P file sharing networks like G2, and eDonkey have popularized peer-

to-peer technologies.

 Content distribution: In a P2P network, unline the client-server system so the clients can both provide

and use resources. Thus, the content serving capacity of the P2P networks can actually increase as more

users begin to access the content.

 IP Telephony: Skype is one good example of a P2P application in VoIP.

Advantages of P2P Network

 Easy to maintain: The network is easy to maintain because each node is independent of the other.

 Less costly: Since each node acts as a server, therefore the cost of the central server is saved. Thus,

there is no need to buy an expensive server.

  No network manager: In a P2P network since each node manages his or her own computer, thus there

is no need for a network manager.

 Adding nodes is easy: Adding, deleting, and repairing nodes in this network is easy.

 Less network traffic: In a P2P network, there is less network traffic than in a client/ server network.

Disadvantages of P2P Network

 Data is vulnerable: Because of no central server, data is always vulnerable to getting lost because of no

backup.

 Less secure: It becomes difficult to secure the complete network because each node is independent.

 Slow performance: In a P2P network, each computer is accessed by other computers in the network

which slows down the performance of the user.

 Files hard to locate: In a P2P network, the files are not centrally stored, rather they are stored on

individual computers which makes it difficult to locate the files.

Marketplace lending

Marketplace lending is a way for businesses or consumers to borrow money directly from investors rather than

going to banks or other conventional lenders. Most transactions happen through online platforms that connect

borrowers with lenders.

It can be a win for all parties involved in the transaction. Borrowers may be able to fund loans quickly even

with bad credit, lenders get returns that aren’t tied to the stock or bond markets and the online platforms get fees

for originating and processing the loans.

You may hear marketplace lending referred to as peer-to-peer (P2P) lending though there technically is a

difference. In pure P2P lending, individuals can invest and lend to borrowers where the marketplace lending

platforms also allow institutions to loan out money.

Differences between traditional lenders and marketplace lenders in the online lending market:

1) Banks and Financial Institutions

 Take in deposits, pay interest and lend money to consumers and businesses

 Generate income by taking risk on their balance sheets and managing the difference between interest

rates paid to savers and charged to borrowers

 Required to hold capital to manage risk and absorb potential losses because of default

 Depositors typically have little control or visibility into how their money is used

 As most deposits have shorter terms than loans, it requires banks to engage in maturity transformation to

create a liquidity buffer

2) Marketplace Lenders

 Play matchmaker between borrowers and lenders/investors using online platforms

 Don’t take in deposits, earn interest, or lend money themselves

 Don’t hold capital to offset potential losses

 Earn money from fees and commissions

 Offer transparency and allow lenders to control funds

 Don’t require a maturity transformation

In the U.S., most institutions, including private-equity firms, hedge fund managers and some banks, provide the

largest amount of lending through the online loan marketplace. Formal partnerships between marketplace

lenders and traditional banks also occur where banks will refer customers to marketplace lenders for small

loans.

Pros and Cons of Marketplace Lending

Like a conventional loan, your rates and terms will vary depending on your creditworthiness. Borrowers with

the best credit scores will get the best rates. Businesses with strong credit scores may receive rates lower than

banks. Businesses with a weak credit history can see significantly higher fees.

The range in rates can be significant. For example, Peerform, a provider of P2P loans, offers fixed rates as of

August 2021 from 5.99% to 29.99% APR.

Here are some of the other advantages and disadvantages you should be aware of with marketplace lending:

Pros – Borrowers

 May offer lower interest rates because of competition and lower origination fees

 Borrowers may be able to secure financing with lower credit ratings

 Application and approval happen quickly

 Funding can happen quickly

 Fixed interest rates and monthly payments

 No impact on credit score for checking interest rates

Pros – Lenders/Investors

 Higher rates of return compared to savings or bonds are possible

 Can choose the risk level

 Risk can be spread among multiple loans

 Some P2P lenders have contingency funds if borrowers default

Cons – Borrowers

 If you have poor credit, rates can be high

  Typically have to agree to automatic monthly payments, which may be difficult for some borrowers

 There may be fees on top of interest rates

Cons – Lenders/Investors

 Higher default rates than conventional loans

 No insurance or government protection in case of default

 If borrowers repay the loan early, returns may be lower than anticipated

 If you want to get your money back more quickly, may have to find another lender to take on the loan

Overview of how marketplace lending is generally structured

Marketplace lending arrangements commonly involve the use of an online platform, such as a website, on

which loan requests are made. The loan requests may then be matched against offers to invest. Investors either

select the loans they wish to invest in or they are matched with loans that meet specified criteria, such as a
prescribed or desired interest rate and loan term. In some arrangements, investors may also be exposed to a loan

or a pool of loans. Multiple investors may also fund a single loan.

Although some forms of marketplace lending have often been referred to as 'peer-to-peer lending' or 'P2P', we

consider 'marketplace lending' more appropriately describes these lending arrangements, and encourage the use

of this term.

Neither marketplace lending nor peer-to-peer lending is a defined legal term. However, providers need to take

care that the way they describe their marketplace lending product is not misleading or deceptive. If the product

is referred to in a way that is misleading or deceptive we may take action as appropriate.

Lending process:

Peer-to-peer vs. marketplace lending

“Peer-to-peer” or “P2P” lending is a related term that isn’t used much anymore in countries with well-

developed financial industries. When platform lending was new, part of its appeal was that it allowed

individuals with only hundreds or thousands of dollars to invest to make loans to other people — peers — who
wanted to borrow similar amounts. Over the years, banks and other major institutions became more active,

crowding out true P2P lending. Although some developing economies still have robust P2P platforms,

Sharestates is one of only a few remaining in the U.S. through which retail investors participate on par

with institutional investors.

Balance-sheet vs. marketplace lending

The borrower’s income and creditworthiness form the basis for marketplace lending terms. Applicants prove

these through tax or bank records or provide a forward-looking business plan. In some cases, lenders make

decisions based entirely on the borrower’s self-declared statement. This differs from balance-sheet lending,

which is another form of platform lending. Balance-sheet lending involves putting a lien on a property — an

asset on the balance sheet.

Key risks involved in providing marketplace lending products

As with other financial products, marketplace lending products have a number of key risks which may impact

on investors and borrowers using an online platform. These include:

 fraud and cyber security risk

 risk that conflicts of interest of the marketplace lending provider are not adequately managed which may

lead, for example, to reduced credit assessment standards, and

 risk that investors and borrowers do not have sufficient understanding of the marketplace lending

product when deciding to participate.

Marketplace lending providers should ensure that investors and borrowers are informed of all relevant risks.
 UNIT IV

UNIT IV

Fintech Regulation

Fintech, short for financial technology, refers to the use of technology to provide financial services and

products. As fintech companies continue to grow and disrupt the traditional financial sector, regulatory

frameworks around the world are struggling to keep up with the pace of innovation. In recent years, many

countries have introduced new laws and regulations to address the unique risks and opportunities posed by

fintech. This blog post provides an overview of fintech regulations in different regions of the world,

highlighting the key regulatory frameworks and emerging trends.

Introduction to Fintech Regulations

Fintech regulations are a set of rules and guidelines that govern the operations of fintech companies,

which leverage technology to provide financial services and products. Fintech is a rapidly growing sector, with

companies disrupting traditional financial institutions and challenging established business models. However,

fintech also poses unique risks and challenges, such as data security, consumer protection, and financial

stability. To address these issues, regulators around the world have been developing new regulatory frameworks

to promote innovation while ensuring that consumer protection and financial stability are maintained.

Emerging Trends in Fintech Regulations

Fintech is a rapidly evolving industry, and fintech regulations to fight against financial crime are also evolving

to keep pace with new innovations and business models. Here are some emerging trends in fintech regulations:

1. Digital Identity: Digital identity is becoming increasingly important in fintech as more financial

transactions are conducted online. Regulators recognize the need for strong digital identity systems to

prevent fraud and protect consumer data. For example, the European Union's eIDAS regulation provides

a framework for digital identities, while India's Aadhaar system is a national digital identity system.

2. Open Banking: Open banking is a model where banks share customer data with third-party providers to

enable new financial services. Regulators in many countries are promoting open banking as a way to

increase competition and innovation in the financial sector. For example, the European Union's PSD2

regulation requires banks to share customer data with third-party providers, while Australia's Consumer

Data Right legislation provides a framework for data sharing across different sectors.

3. Cryptocurrencies: Cryptocurrencies are an emerging asset class that poses new challenges for

regulators. Many countries are introducing new regulations to address issues around consumer

protection, money laundering, and financial stability. For example, the European Union's AMLD5

regulation requires cryptocurrency exchanges to conduct customer due diligence, while the United

States has introduced a patchwork of regulations around cryptocurrencies at the state and federal levels.
 4. Regulatory Sandboxes: Regulatory sandboxes are frameworks that allow fintech companies to test new

products and services in a controlled environment. Sandboxes can help fintech companies navigate

complex regulatory environments and accelerate innovation. Many countries have introduced regulatory

sandboxes, including the United Kingdom, Singapore, and Australia.

5. International Cooperation: Fintech is a global industry, and regulators recognize the need for

international cooperation to address cross-border issues. Organizations like the Financial Stability Board

and the International Organization of Securities Commissions are working to develop international

standards for fintech regulation.

Laws and Regulations Relating to FinTech

As technology advances, so does the duty to govern the goods and services that FinTech laws provide. The

primary regulatory agencies in charge of this sector are the Reserve Bank of India (RBI), Insurance Regulatory

& Development Authority of India, the Securities Exchange Board of India (SEBI), the Ministry of Corporate

Affairs, and the Ministry of Electronics and Information Technology (MEITY). The proper regulatory agency in

charge of its goods and services would govern a FinTech firm. For example, the RBI regulates FinTech

enterprises that deal with account aggregation, peer-to-peer credit, cryptocurrencies, payments, etc.

In India, the FinTech regulatory structure is significantly fragmented, with no body of rules or norms governing

all FinTech services. As a result, this industry is tough to control since there is no common set of FinTech laws.

The sections that follow go through some of the important rules that apply to FinTech enterprises in India.

The Payment & Settlement Systems Act of 2007

Payments in India is governed by the Payments & Settlements Systems (PSS) Act of 2007. According to the

PSS Act, a "payment system" cannot be developed or operated without the prior authorization of the RBI. A

"payment system," according to the PSS Act, is "a system that allows payment to be made from one person to

another," but it expressly excludes a stock exchange. PPIs, money transfer services, smart card operating

systems, and debit and credit card operating systems are all payment methods. Before a payment system can
begin or be put into operation, the RBI must approve it. As a result, compliance with this FinTech Law is

required for FinTech businesses to function.

The Companies Act of 2013

FinTech companies, like any other business in India, must register under the Companies Act 2013 and follow

all of the Act's laws and regulations. The Act incorporates and authorises FinTech companies like Paytm,

Bharat Pe, and others.

The Consumer Protection Act of 2019

For the Consumer Protection Act, companies in the FinTech business are considered service providers. Unfair

commercial practises are defined as the "publication of consumer's personal information submitted in

confidence unless required by law or in the public interest," according to Section 2(47)(ix) of the Act.

Comparable to this are the Information Technology Rules, 2011, which restrict the sharing of a consumer's

personal information without prior authorisation unless required by law. FinTech companies must follow this

rule since they handle sensitive personal data belonging to their customers.

The Prevention Money Laundering Act 2002

The Prevention of Money Laundering Act & the Prevention of Money Laundering Rules 2005, also the KYC

Master Directions, are the primary rules that provide anti-money laundering standards and operational

guidelines for enterprises that offer financial services in the country. The rules mentioned above oblige banking

institutions, financial institutions, and intermediaries to validate customer identification, keep records, and send

information to the Financial Intelligence Unit - India in a certain format (FIU-IND).

The Information Technology Act of 2000

As FinTech platforms acquire and keep more user information, particularly behavioural and financial

information about individuals, the need to preserve consumer privacy and data has grown. However, currently,

India needs a dependable data privacy system. The two primary pieces of law governing personal data privacy
are the Information Technology Act of 2000 (IT Act) and the Rules on IT (Reasonable Security Practices &

Procedures & Sensitive Personal Data or Information).

FinTech companies must also observe the IT Act's rules. Businesses are liable for damages under Section 43A

if they fail to take adequate security steps to protect their customers' sensitive personal data. In addition, section

72A imposes penalties for disclosing information in violation of a legitimate contract. Individual personal data

is critical to FinTech businesses. Therefore, following the mandatory data security rules is essential to prevent

legal complications.

The Reserve Bank of India's Regulations

The Reserve Bank of India Act and a set of regulating guidelines and circulars are the primary regulatory

mechanisms that apply to NBFCs. Certain FinTechs are regulated by the RBI, either directly through issuing

NBFC licences to them or indirectly through regulating banks and NBFCs associated with FinTech. In order to

be licenced by the RBI, the organisation must meet a number of criteria. Several digital lenders in India have

received NBFC approval.

The Insurance Act

Insurance technology, or InsurTech, companies cooperate with a wide range of stakeholders to disrupt the

insurance industry's value chain. Through their relationships with insurance companies, they have aided in the

acceleration of application procedures as well as the automation of testing and claim processes. Some

companies also act as online aggregators on occasion, allowing customers to compare the breadth of coverage,

the term, the premium, and other relevant characteristics before making a decision. These web aggregators must

be approved by the Insurance Regulatory Development Authority of India, the country's primary insurance

sector regulator.

The Foreign Exchange Management Act

According to RBI rules published under the FEMA, numerous cross-border transaction services have been

formed due to improvements in India's FinTech industry. Foreign currency transactions are governed by the
Foreign Exchange Management Act of 1999 ("FEMA") and the rules and regulations promulgated under it.

According to the RBI's rules established under the FEMA, Accredited Dealer Category II Entities, such as

usurers, are permitted to provide foreign currency pre-paid cards in India to Indian citizens in compliance with

the FEMA.

The PPI (Prepaid Payment Instruments) Master Directions also allow qualifying companies to issue PPIs for

overseas transactions. Authorised dealer category I can supply semi-closed and open-system PPIs for FEMA-

compliant, FEMA-compliant and payments of up to 10,000 per transaction and 50,000 per month acceptable

current account transactions (including all the procurement of goods and services).

Challenges and Opportunities for Fintech Regulations

CHALLENGES OPPORTUNITIES

Lack of clarity: Fintech regulation is still

Financial inclusion: Fintech has the potential
developing, and there is often a lack of clarity
to increase financial inclusion by providing
around what is required of fintech companies. This
access to financial services for underserved
can create uncertainty and slow down innovation.
populations. This can help to reduce poverty
Especially cryptocurrency and digital asset frauds
and promote economic growth.
remain in the grey zone.

Regulatory fragmentation: Fintech companies

Innovation: Fintech is driving innovation in
often operate across multiple jurisdictions, each
the financial sector, creating new products and
with its own regulatory environment. This can
services that can improve efficiency and
create a patchwork of regulations that are difficult
reduce costs.
to navigate.
Compliance costs: Compliance with fintech Consumer protection: Fintech regulations can

regulations can be expensive, particularly for small help to protect consumers by ensuring that

fintech companies. This can create a barrier to financial products and services are safe and

entry for new companies and limit competition. transparent.

Technology advancements: Technology is

Data protection: Fintech regulations can help
advancing rapidly, and regulators may struggle to
to protect consumer data by setting standards
keep up with new innovations and business
for data security and privacy.
models.

Evolution of Regtech

RegTech, which stands for Regulatory Technology, refers to the use of technology to streamline and

enhance regulatory compliance processes in the financial services industry. Financial corporations at this age

are supposed to determine innovative ways to deal with risks and comply with rapidly changing regulations.

This has generated the need to develop regulatory-focused technology that is commonly referred to as RegTech.

It encompasses a range of tools and solutions designed to help financial institutions comply with complex and

ever-changing regulations more efficiently and effectively. The evolution of RegTech has been driven by the

increasing regulatory burden on financial institutions, advancements in technology in compliance management,

and the need for more robust compliance measures.

How RegTech Evolved over the Years

From the beginning of the RegTech era, it has changed and transformed instantly. As per CB insights, the

phases RegTech transformation has divided into 4 main stages that present how RegTech solutions have

changed with time:

 1. Manual

This is the first stage of RegTech, which includes manual ways of collecting and storing information. These

fundamental reporting methods allowed compliance teams to store and manage data in programs like Microsoft

Excel. Various enterprises have utilized these solutions to improve their compliance management processes.

2. Roadmap Automation

As technology usage rose in terms of software for regulatory and compliance applications, the second phase of

RegTech commenced. In this workflow/ roadmap stage, financial institutions started using compliance

management platform software for regulatory reporting, monitoring, and automating audit trials and compliance

activities. This phase of automation decreased hurdles and facilitated fulfilling compliance and regulatory

demands.

3. Constant Monitoring

The monitoring stage includes process automation, data analytics, and back-office incorporations. With constant

monitoring, ambiguities, and regulatory gaps are instantly observed and fixed. This allows financial enterprises

to mitigate risk, enhance compliance management, and prevent breaches, among other substantial security risks.

4. Predictive modeling

The prospect of RegTech is in emerging technologies such as cognitive computing, advanced analytics,

machine learning, the cloud, and artificial intelligence. Enterprises are initiating to influence artificial

intelligence for risk detection, compliance intelligence, and background evaluation. Additionally, data tools and

artificial intelligence platforms are being utilized to track pre- and post-trade compliance, provide instant

insights, enhance efficiencies in compliance procedures via automation, reduce mitigating costs, and give

foresight into the latest risk challenges.

Benefits of RegTech

Automation And Efficiency Gains

The advantages of RegTech are numerous and varied, with automation and efficiency gains being one of the

most significant benefits. With the implementation of this type of digital solution, organizations can streamline

their operations while meeting stringent standards for compliance with regulations.

RegTech has been a game-changer in terms of how companies conduct business today. Businesses no longer

need to rely solely on manual processes that lack accuracy and speed to ensure regulatory compliance; instead,

they can deploy automated solutions that take much less time and energy to maintain. Furthermore, having

access to an integrated platform makes it easier for employees to remain apprised of constantly evolving

regulations and policies across multiple jurisdictions at once.

Cost Savings

The implementation of RegTech solutions can also result in cost savings for organizations. By leveraging

automated processes, companies can reduce the time and resources required to process compliance-related tasks

manually. This means that personnel costs associated with training staff on changing regulations or hiring

additional support teams become significantly reduced.

Additionally, operational risks associated with manual applications can be eliminated through the use of

RegTech tools designed specifically for regulatory management. Automated systems enable businesses to

monitor their data more accurately than ever before and flag potential violations quickly and efficiently. As

such, this helps ensure timely and accurate reporting while reducing exposure due to noncompliance issues –

ultimately leading to a decrease in costly fines or penalties imposed by governing authorities.

Enhanced Data Analysis Capabilities

RegTech also allows organizations to gain deep insights into their data and operations. This is made possible

through the use of advanced analytics, which can be used to identify trends and report in real time. Additionally,

companies can export this information for further review, allowing them to make more informed decisions

when it comes to regulatory compliance measures.

Increased Risk Management

Much like a fortress, RegTech provides businesses with an additional layer of protection against missteps in the

ever-changing landscape of compliance regulations. By leveraging sophisticated algorithms and predictive

analytics solutions, companies are able to identify potential risks in real-time and take proactive steps to

mitigate any issues before they arise. By monitoring customer data on an ongoing basis, organizations can

quickly detect patterns in their operations that could indicate fraudulent activity or otherwise breach regulatory

requirements. In this way, RegTech acts as both a shield and sword – providing robust defense while

simultaneously allowing firms to stay ahead of their competitors in terms of risk management capabilities.

Improved Customer Experience

RegTech also offers a range of benefits when it comes to customer experience. By automating compliance

processes and enabling organizations to understand their customers’ needs better, RegTech can help businesses
create more personalized services and provide greater convenience for consumers. In addition, using advanced

analytics solutions enables firms to generate precise insights into how customers interact with their offerings –

allowing them to identify areas for improvement and develop strategies for growth. Companies can also track

industry trends closely and adjust their approaches accordingly.

Enhanced Security And Privacy Protection

RegTech also provides enhanced security and privacy protection for businesses, customers, and other

stakeholders. By using innovative solutions such as biometrics and blockchain technology, organizations can

ensure that only authorized personnel can access sensitive data – helping them meet regulatory requirements

while keeping all information secure. Machine learning algorithms can monitor customer behavior in real time

and detect any suspicious activity before it causes damage. As a result, organizations are better equipped to

protect their assets from cybercrime or fraud.

In addition, RegTech offers improved privacy protections by allowing firms to control the collection and use of

personal data more efficiently – enabling them to stay compliant with relevant laws while respecting the rights

of individuals. These advances mean that customers’ confidential data remain protected – providing peace of

mind for both businesses and users alike. Moreover, this helps cultivate trust between companies and their

target audience – laying solid foundations upon which long-term relationships can be built upon. In turn, these

partnerships create mutual value in the form of increased loyalty, engagement, revenue growth, etc.

Streamlined Know Your Customer (KYC) Processes

Streamlined KYC processes are another benefit of RegTech firms that can automate customer identity

verification and onboarding procedures – reducing the time taken to complete such tasks from days or weeks to

minutes. This simplifies not only administrative burdens but also allows financial institutions to gain a better

understanding of their customers’ needs – enabling them to make faster decisions regarding risk assessment,

creditworthiness, and other important matters.

RegTech ecosystem

The RegTech ecosystem has been steadily expanding since the financial crisis of 2007-2008. According to the

latest version of the RegTech Universe by Deloitte published in October 2018, the number of vendors in the

industry is 263. These companies are classified by five niches, including:

– Regulatory reporting;

– Risk management;

– Identity management;

– Compliance support;

– Transaction monitoring.

The survey by Burnmark counted 401 RegTech providers currently in business, with only 12% among them

represented by traditional vendors. More importantly, the number of the post-crisis RegTech companies is on

the continuous rise. All segments saw a growth from 2015 to 2018 by 44% on average.

GLOBAL REGTECH INVESTMENT AND FORECAST

Since the crisis of 2008, the financial institutions had to increase personnel and consultancy expenses to meet

the requirements of the regulatory expansion and minimize the fines and settlements. According to Opimas

Analysis, the global talent and consultancy expenses have been steadily increasing from $25 billion in 2008 to

$90 billion in 2016. The annual growth of regulatory compliance talent spending reached 15% to 25% over the

last four years.

However, in light of the upcoming halt to the introduction of new financial regulations and a lighter touch on

their compliance, most of the compliance processes can be automated through RegTech adoption. As a result,

the analysts forecast significant savings on talent and consultancy starting in 2019. At the same time, the

RegTech expenses will exceed $80 billion globally in 2018 and will continue to grow through 2020. The global

RegTech expenses will surpass $100 billion in two years. The critical expense categories include:
– Data management;

– Activity monitoring software;

– Transaction reporting tools;

– Risk Management software;

– Regulatory reporting and compliance toolset.

The RegTech expenses are expected to plateau after 2020, as banks adjust to the new regulatory climate,

accumulate data, and put big data and artificial intelligence solutions to good use. According to the industry

analysts at Opimas, in two years banks and other financial institutions will have automated their regulation

compliance processes and improved their IT capabilities to address the regulatory expansion.

INDIVIDUAL REGTECH INVESTMENT INITIATIVES

Despite the optimistic forecasts, only half of the financial institutions are currently investing in RegTech. The

survey by Banking Technology and Burning Point reveals that only 48% of the responders are interested in

RegTech initiatives, and half of them invest under 1 million Euro. Regulatory reporting utilities, anti-money

laundering (AML), know your customer (KYC), platform integration tools and blockchain are among the

primary investment interests for small to medium financial institutions.

Within the next three years, only 52% of the financial institutions plan to increase RegTech investment, while

17% are willing to keep up the same level of expenses. Only 2% of the businesses are ready to cut down the

RegTech spending in the coming years.

Traditional vendors and startups join the RegTech universe, expanding the process automation and security

capabilities. The rise of niche solutions and customized tools enables financial institutions to capitalize on

potential governance, regulation, and compliance savings.

RegTech Companies

Some example of notable regtech companies and the tools they have created include:
  IdentityMind Global: Provides anti-fraud and risk management services for digital transactions by

tracking payment entities.

 Trunomi: Securely manages the consent to use customer personal data.

 Suade: Helps banks submit required regulatory reports without disruption to their architecture.

 Silverfinch: Connects asset managers and insurers through a fund data utility to meet Solvency

II requirements.

 PassFort: Automates the collection and storage of customer due diligence data.

 Fund Recs: Oversees how data is managed and processed by the fund industry.

Financial institution partner with RegTech

FIs can partner with RegTech providers or with regulatory consulting firms to develop holistic solutions and

address issues related to disparate compliance teams. Any RegTech that can add intelligence to data and reduce

manual effort is a prime target for use within financial institutions. Finding efficient ways to get a technology

solution understood, approved and deployed is part of the puzzle that needs to be solved as soon as possible. For

example, online identity verification solutions can provide access to a wide array of trusted and independent

data sources, such as government records, utilities and credit files. Various types of partnerships are illustrated

below.

Partnership Model Sample use case Benefits

FI - FI Machine Learning Tool forMutual cost compliance and consistent interpretation of

compliance regulation

FI - Regulator KYC Utility Faster digital onboarding service

FI - Startup RegTech Accelerators Use advanced technology for, better and cost-effective
 RegTech Investments compliance

FI - Vendor Cognitive RegTechs Traditional vendors leverage advanced technologies to

make strides into the RegTech space

FI – Regulator - Startup Distributed ledger forDevelop effective, future proof solutions that meet the

regulatory reporting needs of all parties involved

Startup –Startup Comprehensive complianceCombine niche technology expertise to create a

offerings complete solution for compliance—offer compliance in

a box

Regulator - Startup Regulator Sandbox To test innovation business models and allow regulators

to experiment with new technologies. Experiment with

Regulator Accelerators
Supervisory Technology (SupTech) solutions

Regulator - Regulator Home-host regulatorHarmonise policies across borders to promote banks

collaboration and Fintechs to expand and operate smoothly.

Reduction in disparity in scope of regulations across

geographies can go a long way in reducing compliance

costs and risks for firms.

RegTech Startups

The RegTech has over 2.3K+ startups that comprise companies that are engaged in offering a range of tech

products primarily for financial institutions and regulators for efficient implementation and monitoring of

financial regulations. This includes companies offering KYC, AML & fraud detection, risk & compliance

management, regulatory reporting and suptech solutions.

RegTech is one of the most active sectors for investors, with overall funding of USD 17.4B in 900+ companies.

It is also interesting to note that more than half of the funding has been raised in the last 3 years (2019-

2021).Plug and Play Tech Center, FinTech Innovation Lab, Techstars, LHoFT, F10 are amongst the most active

investors in this sector, by the number of investments.

KYC, suite, AML, compliance management, insurance risk some of the top business models attracting major

funding. We, at Tracxn, keep a track of the latest happenings in the world of startups and their associated

ecosystems – including venture capital funds, private equity funds and investment banks amongst others. In this

edition, we have the ‘RegTech startups 2022’ – a curated list of the most promising startups leading the

RegTech industry, from across the globe.

RegTech startups that are contributing to the significant growth in this sector.

It’s tough to avoid thousands of regulatory landmines on top of running day-to-day business operations. From

circumventing potential risks to detecting fraud, there are a lot of things to stay on top of. With the help of

regulatory technology solutions, it’s possible to improve, streamline, and automate regulatory processes. The

relatively young RegTech market is on track to reach a jaw-dropping valuation of $19.5 billion by 2026. As

more companies continue to enter this massive space, the industry is projected to reach $21.73 billion by 2027.

Some of the hottest RegTech startups that are contributing to the significant growth in this sector.

1. Chainalysis

Chainalysis is an anti-money laundering (AML) and risk detection solutions provider for blockchains. They

offer their cryptocurrency compliance products to crypto companies, financial institutions, and agencies. From

KYT (know your transactions) to virtual investigation (crypto forensics), the startup offers a range of solutions.

Chainalysis has a global reach, with customers spread across 60+ countries.

2. PaymentWorks
A cybersecurity company, PaymentWorks offers fraud detection software for B2B payments. The platform is

mainly designed to help automate some of the manual work associated with verifying payee and payer details.

This can help reduce costs, avoid risks, and stay compliant. PaymentWorks recently increased its enterprise

customer base by 80%. It also reported a 200% rise in revenue.

3. Quantexa

Quantexa helps enterprises with different regulatory compliance domains, including AML, KYC, credit risk,

and more. They do this by providing a platform for streamlined data analytics, which, in turn, can potentially

help customers make contextual decisions. So far, Quantexa’s solutions have been deployed across more than

70 countries. Their products are specifically catered to banking, insurance, and government organizations.

4. FundApps

FundApps is a UK-based regtech startup that provides software solutions for financial compliance management

to asset managers and other financial institutions. Their cloud-based platform automates the regulatory

compliance process by monitoring regulatory changes, analyzing data, and providing reports to help clients

ensure compliance. Founded in 2010, FundApps has grown rapidly and now serves hundreds of clients in over

40 countries.

5. Ascent

Ascent offers cloud-based regulatory compliance software for financial businesses, banks, law firms, and asset

management companies. The platform enables users to track internal activities and automate the process of

figuring out the legal obligations for their business. It’s estimated that Ascent earns up to $25M in annual

revenue.

6. ClauseMatch

A SaaS startup, ClauseMatch is closing a major gap in regulatory compliance tech – smart document

management. Through centralized, automated policy and regulatory change solutions, ClauseMatch can help its
users take the busy work out of compliance document management. The platform’s features include an online

editor, a regulatory portal, AI-enabled content mapping, and more. ClauseMatch has an impressive clientele,

with names like Barclays, Cincinnati Financial Corporation, and Revolut.

7. Trunomi

Trunomi is a RegTech platform that helps enterprises stay compliant with international regulations concerning

data privacy. The company claims that businesses can start protecting themselves from non-compliance in

under 2 hours with their solutions. Trunomi’s platform has been designed to help companies understand their

data, know the regulations that apply to them, and visualize and map customer data. The startup recently

hit $1.5M in annual revenue.

Challenges to RegTech

RegTech solutions have been a lifesaver for many financial services firms. However, when implementing new

programs, firms may have to overcome several challenges. The emergence of RegTech solutions has been a

lifesaver for many financial services firms as the proliferation of data, increasing sophistication of bad actors,

and ever-more complex regulatory requirements make compliance more complicated and more costly. In

addition to enhanced regulatory requirements, new financial products, greater customer expectations, the move

toward 24/7 trading and instant transactions have made effective compliance and risk management even more

challenging.

In the face of these pressures, the effective adoption of new RegTech solutions can help to lower costs, increase

business agility, and even point the way to the new products and processes that will drive the enterprise of the

future. In our previous blog post, “3 Guiding Principles for RegTech Success,” we looked at some of the key

areas to focus on for a successful RegTech implementation.

Adopting new RegTech solutions isn’t without its challenges, however. When implementing programs,

financial services firms should keep an eye out for these challenges and ways to address them. Here are four

challenges many firms confront when undertaking new RegTech efforts:

 Navigating inconsistent regulation: One massive problem is the complexity of the regulations

themselves. Not only is there divergence between regulators in different countries, but conflicts can also

emerge between regulators in the same jurisdiction, for instance, the SEC and the CFTC. Add a

continual flow of new rules and the problems quickly compound.

 Handling the quantity, complexity, and speed of information: We live in the age of data, with

volumes increasing at an unrelenting pace. In addition, regulation often requires the combination of

disparate data sets so that the pace of data creation, as well as the demands of regulatory reporting

deadlines, magnify the need for speed.

 Extracting insights from data: Managing lots of data is one thing, but generating insights from that

data is quite another. Too often, existing data repositories are siloed and/or incompatible with other

pools of information, making it difficult to extract meaningful output. At a minimum, insights can be

constrained and slowed because too much time and effort is spent on managing inputs rather than

maximizing output.

 Adopting new practices and technologies: Adopting new RegTech solutions isn’t simply doing more

of the same. It requires a fundamental change to nearly all aspects of business processes and procedures,

including both development and operations.

Regulatory Technology (RegTech)

Regulatory Technology (RegTech) is an emerging platform that combines regulations with technology to

facilitate compliance with increasingly complex regulations in various industries, especially banking, finance,

communication, and energy. RegTech serves users in-process monitoring and provides solutions to points that
do not comply with regulations. By doing so, it helps companies to generate cost-effective and real-time

solutions from risk and compliance units. They are crucial because compliance with regulations is mandatory,

and the cost of non-compliance is high. Companies that fail to comply with regulations face hefty penalties,

reputation damage, and even criminal charges. In this regard, RegTech companies have become essential in the

financial industry, where compliance is of utmost importance.

RegTech industry help financial institutions comply with regulations by offering solutions that automate and

streamline compliance processes. These solutions help financial institutions to reduce costs and minimize risks

associated with non-compliance. RegTech solutions have become a game-changer for financial institutions in

managing compliance risks with the increasing complexity of regulations.

• A regulatory sandbox is a regulatory approach, typically summarized in writing and published, that allows

live, time-bound testing of innovations under a regulator’s oversight. Novel financial products, technologies,

and business models can be tested under a set of rules, supervision requirements, and appropriate safeguards.

• A sandbox creates a conducive and contained space where incumbents and challengers experiment with

innovations at the edge or even outside of the existing regulatory framework.

• A regulatory sandbox brings the cost of innovation down, reduces barriers to entry, and allows regulators to

collect important insights before deciding if further regulatory action is necessary.

• A successful test may result in several outcomes, including full-fledged or tailored authorization of the

innovation, changes in regulation, or a cease-anddesist order.

• The first regulatory sandbox was launched in 2015 in the U.K. and generated great interest from regulators

and innovators around the world. At the beginning of 2018, there were more than 20 jurisdictions actively

implementing or exploring the concept.

Government promote regulatory sandboxes

• Governments should give thoughtful consideration to whether the innovations being tested in a sandbox have

the potential to improve access to and usage of financial services by the poor. When considering a regulatory

sandbox, regulators should clearly define the objectives and the challenges that need to be addressed. They also

need to dedicate sufficient resources to support implementation. It is crucial to engage the industry early in the

process to get its perspective and secure buy-in.

• While there is no universal blueprint or set of best practices to follow, regulators can consult publicly

available resources. Those include jurisdictions with a regulatory sandbox in place, international development

organizations, other regulators through peer learning platforms for financial inclusion policymaking, and private

consulting firms.

• A sandbox is not a panacea for all regulatory challenges brought about by innovation, nor is it the only

solution. Other options include a test-andlearn approach to try out new ideas under ad hoc circumstances in a

live environment (e.g., agent banking in Indonesia, Kenya, Philippines, Rwanda) or a waitand-see strategy that

allows for informal monitoring of new trends before any formal intervention is performed (e.g., P2P lending,

cryptocurrencies). Compared to those approaches, regulatory sandboxes are more structured, objective-driven,

and publicized, but also more formalistic, costly and resource-intensive.

Smart Regulation

The concept of ‘smart regulation’ in a book of that title in 1998. Subsequently, the concept has been refined in

various publications by Gunningham and Sinclair (1999a, 1999b, 2002). The term refers to a form of regulatory

pluralism that embraces flexible, imaginative and innovative forms of social control. In doing so, it harnesses

governments as well as business and third parties. For example, it encompasses self-regulation and co-

regulation, using commercial interests and non-governmental organisations (NGOs) (such as peak bodies) as

regulatory surrogates, together with improving the effectiveness and efficiency of more conventional forms of

direct government regulation. The underlying rationale is that, in the majority of circumstances, the use of

multiple rather than single policy instruments, and a broader range of regulatory actors, will produce better
regulation. As such, it envisages the implementation of complementary combinations of instruments and

participants tailored to meet the imperatives of specific environmental issues.

A smart regulatory framework is essential to enabling an appropriate approach to illegal content. We wanted to

share four key principles that inform our practices and that (we would suggest) make for an effective regulatory

framework:

 Shared Responsibility: Tackling illegal content is a societal challenge—in which companies,

governments, civil society, and users all have a role to play. Whether a company is alleging copyright

infringement, an individual is claiming defamation, or a government is seeking removal of terrorist

content, it’s essential to provide clear notice about the specific piece of content to an online platform,

and then platforms have a responsibility to take appropriate action on the specific content. In some

cases, content may not be clearly illegal, either because the facts are uncertain or because the legal

outcome depends on a difficult balancing act; in turn, courts have an essential role to play in fact-finding

and reaching legal conclusions on which platforms can rely.

 Rule of law and creating legal clarity: It’s important to clearly define what platforms can do to fulfill

their legal responsibilities, including removal obligations. An online platform that takes other voluntary

steps to address illegal content should not be penalized. (This is sometimes called “Good Samaritan”

protection.)

 Flexibility to accommodate new technology: While laws should accommodate relevant differences

between platforms, given the fast-evolving nature of the sector, laws should be written in ways that

address the underlying issue rather than focusing on existing technologies or mandating specific

technological fixes.

 Fairness and transparency: Laws should support companies’ ability to publish transparency reports

about content removals, and provide people with notice and an ability to appeal removal of content.

They should also recognize that fairness is a flexible and context-dependent notion—for example,
 improperly blocking newsworthy content or political expression could cause more harm than mistakenly

blocking other types of content.

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 UNIT V

UNIT V

History of data regulation

BRIEF HISTORY OF DATA PROTECTION

The EU's data protection laws have long been regarded as a gold standard all over the world. Over the last 25

years, technology has transformed our lives in ways nobody could have imagined so a review of the rules was

needed. In 2016, the EU adopted the General Data Protection Regulation (GDPR), one of its greatest
achievements in recent years. It replaces the1995 Data Protection Directive which was adopted at a time when

the internet was in its infancy.

The GDPR is now recognised as law across the EU. Member States have two years to ensure that it is fully

implementable in their countries by May 2018. The timeline below contains key dates and events in the data

protection reform process from 1995 to 2018. The timeline also contains highlights of some of the ways that the

GDPR strengthens your right to data protection. These can be found under the headings

With the GDPR being enforced on 25th of May, we decided to take a glimpse back into the history of data

privacy and traced it's first precursors as originating more than 100 years ago.

 1890: Two United States lawyers, Samuel D. Warren and Louis Brandeis, write The Right to Privacy, an

article that argues the "right to be left alone", using the phrase as a definition of privacy.

 1948: The Universal Declaration of Human Rights is adopted, including the 12th fundamental right, i.e.

the Right to Privacy.

 1950: The EU Convention on Human Rights sequence of fundamental rights is amended, with articles

now appearing in a different order.

 1967: The Freedom of Information Act (FOIA) comes into effect in the US and gives everyone the right

to request access to documents from state agencies. Other countries follow suit.

 1980: OECD issues guidelines on data protection, reflecting the increasing use of computers to process

business transactions.

 1981: The Council of Europe adopts the Data Protection Convention (Treaty 108), rendering the right to

privacy a legal imperative.

 1983: The Federal Constitutional Court of Germany reaches a fundamental decision regarding the

census judgment. The verdict is considered a milestone of data protection.

 1993: PC Brown is charged with the UK Data Protection Act 1984 offence of using personal data or a

purpose other than that described in the Data Protection Register - ruling is overturned.
  1995: The European Data Protection Directive is created, reflecting technological advances and

introducing new terms including processing, sensitive personal data and consent, among others.

 2002: The EU adopts the Directive on Privacy and Electronic Communications.

 2006: The EU Directive on the retention of data generated or processed in connection with the provision

of publicly available electronic communications services or of public communications networks is

adopted. Declared invalid by a Court of Justice ruling in 2014 for violating fundamental rights.

 2009: Evolution of the EU Electronic Communications Regulations in response to email addresses and

mobile numbers becoming prime currency in conducting marketing and sales campaigns.

 2010: The international non-profit organisation Wikileaks publishes secret information, news leaks, and

classified media provided by anonymous sources.

 2013:European Commission adopts the Regulation 611/2013 on the measures applicable to the

notification of personal data breaches under Directive 2002/58/EC.

 2014: A ruling by the Court of Justice of the EU finds that European law gives people the right to ask

search engines like Google to remove results for queries that include their name. The concept becomes

known as “the right to be forgotten”.

 2016: The General Data Protection Regulation (GDPR) is approved by the EU parliament after 4 years

of discussions.

 2018: GDPR is being enforced, replacing the Data Protection Act.

 2018+: Responsible management of personal data through mature IT governance, transparent processes

and modern applications.

Data in financial services

Digitization in the finance industry has enabled technology such as advanced analytics, machine

learning, AI, big data, and the cloud to penetrate and transform how financial institutions are competing in the

market. Large companies are embracing these technologies to execute digital transformation, meet consumer
demand, and bolster profit and loss. While most companies are storing new and valuable data, they aren’t

necessarily sure how to maximize its potential, because the data is unstructured or not captured within the firm.

As the financial industry rapidly moves toward data-driven optimization, companies must respond to these

changes in a deliberate and comprehensive manner. Efficient technology solutions that meet the advanced

analytical demands of digital transformation will enable financial organizations to fully leverage the capabilities

of unstructured and high volume data, discover competitive advantages, and drive new market opportunities.

But first, organizations must understand the value of big data technology solutions and what they mean for both

their customers and their business processes.

Data has revolutionized finance

Financial institutions are not native to the digital landscape and have had to undergo a long process of

conversion that has required behavioral and technological change. In the past few years, big data in finance has

led to significant technological innovations that have enabled convenient, personalized, and secure solutions for

the industry. As a result, big data analytics has managed to transform not only individual business processes but

also the entire financial services sector.

 Real time stock market insights

Machine learning is changing trade and investments. Instead of simply analyzing stock prices, big data can now

take into account political and social trends that may affect the stock market. Machine learning monitors trends

in real-time, allowing analysts to compile and evaluate the appropriate data and make smart decisions.

 Fraud detection and prevention

Machine learning, fueled by big data, is greatly responsible for fraud detection and prevention. The security

risks once posed by credit cards have been mitigated with analytics that interpret buying patterns. Now, when

secure and valuable credit card information is stolen, banks can instantly freeze the card and transaction, and

notify the customer of security threats.

  Accurate risk analysis

Big financial decisions like investments and loans now rely on unbiased machine learning. Calculated decisions

based on predictive analytics take into account everything from the economy, customer segmentation, and

business capital to identify potential risks like bad investments or payers.

Data challenges in finance

As big data is rapidly generated by an increasing number of unstructured and structured sources, legacy data

systems become less and less capable of tackling the volume, velocity, and variety that the data depends on.

Management becomes reliant on establishing appropriate processes, enabling powerful technologies, and being

able to extract insights from the information.

The technology is already available to solve these challenges, however, companies need to understand how to

manage big data, align their organization with new technology initiatives, and overcome general organizational

resistance. The specific challenges of big data as related to finance are a bit more complex than other industries

for many reasons.

1. Regulatory requirements

The finance industry is faced with stringent regulatory requirements like the Fundamental Review of the

Trading Book (FRTB) that govern access to critical data and demand accelerated reporting. Innovative big data

technology makes it possible for financial institutions to scale up risk management cost-effectively, while

improved metrics and reporting help to transform data for analytic processing to deliver required insights.

2. Data security

With the rise of hackers and advanced, persistent threats, data governance measures are crucial to mitigate risks

associated with the financial services industry. Big data management tools ensure that data is secure and

protected, and that suspicious activity is detected immediately.

3. Data quality
Finance companies want to do more than just store their data, they want to use it. Because data is sourced from

so many different systems, it doesn’t always agree and poses an obstacle to data governance. Data management

solutions ensure information is accurate, usable, and secure.

Simultaneously, real-time analytics tools provide access, accuracy, and speed of big data stores to help

organizations derive quality insights and enable them to launch new products, service offerings, and

capabilities.

4. Data silos

Financial data comes from many sources like employee documents, emails, enterprise applications, and more.

Combining and reconciling big data requires data integration tools that simplify the process in terms of storage

and access. Big data solutions and the cloud work together to tackle and resolve these pressing challenges in the

industry. As more financial institutions adopt cloud solutions, they will become a stronger indication to the

financial market that big data solutions are not just beneficial in IT use cases, but also business applications.

Digital identity

In today's digital ecosystem, every person and every "thing" — computers, smartphones, internet-connected

devices (IoT), and applications — has a unique digital identity. A digital identity contains certain unique

identifiers that allow systems, services, and applications to know who or what they are interacting with. During

an in-person transaction, you may show a driver's license or other government-issued identification to verify

your identity. But to verify your identity in the digital world, without human intervention, there needs to be a

combination of data and attributes or behaviors that, together, provide a reasonable level of certainty about your

authenticity. These attributes may include:

 Username

 Password

 Fingerprint or facial scan

 Email address
  Network

 IP address

 Device and operating system

 Online activities

 Date of birth

 Social Security number

 Purchasing history or behavior

Types of digital identity?

Depending on the activities a user wants to perform, they need a different type of ID. While purpose, data

elements, and requirements may differ, the IDs have one thing in common: a numerical or alphanumeric code

that serves as a unique identifier and thus considerably improves security.

Four examples of digital IDs we all use in our daily lives:

 Employee ID

Assigned by the employer, it allows the employee to access the internal network, enter the building, or use other

company resources. The employer, in turn, uses it to manage employee data, give permission to applications,

monitor performance, etc.

 Online shop / Customer ID

No secure online purchase without a customer ID. While the user benefits from increased security when using a

customer ID, it has multiple advantages for providers: it helps them to manage data, i.e. track customers’
transactions, preferences, or demographic information. But it also allows them to improve customer service,

personalize marketing campaigns, and even to prevent fraud by detecting unusual patterns.

 E-banking ID

Also here, security is key. The e-banking ID a user needs to access online banking services usually consists of a

username/password, contract number, and SMS code or QR code. Once logged in, customers can see their bank

account information and make transactions, e.g. pay bills or trade securities.

 Citizen ID

Authorities provide citizens with secure access to their online offerings 24/7, enhancing public service and the

interaction with their customers. Citizens are able, for example, to order official documents, thus avoiding time-

consuming visits to offices. In addition, every taxpayer finds a personal identification number on the tax return

they need to complete, which allows them to submit the papers electronically.

How does digital identification work today?

To use any kind of digital services, users must authenticate themselves on the provider’s website with their

credentials. The procedures to register and then log in are almost as numerous as the websites. Users therefore

end up with countless logins and accounts. A major nuisance.

For the sake of user experience, a high number of digital service providers allow authentication via social

accounts, such as Google, Facebook, and Apple. In addition, Switzerland has launched an e-ID initiative aiming

to facilitate life for citizens by providing them with an official digital ID that can be used country-wide.

Players in the digital identity ecosystem

For digital identities to work in a reliable manner and to leverage the benefits they provide, a well-balanced

ecosystem is required. This ecosystem should be characterized by trust, security, and transparency. It includes

the following key players:

Society
«Society» refers to the identity owners: individuals who own and control their digital identity by creating and

managing their online accounts and profiles.

It may take 10 to 20 years to see whether the concept of digital identities is widely accepted by individuals and

becomes a reality. One key driver in addition to security might be usability.

Government

The government agencies and industry organizations establish standards and regulations for digital identities,

thus making sure they are interoperable, trustworthy, secure and ethically correct.

Tech

Tech companies provide solutions for digital identity management, such as biometric authentication systems,

blockchain-based identity platforms, and identity and access management software. They make the ecosystem’s

heart beat.

Businesses

Providing online services, businesses are the individuals’ counterpart. They rely on digital identities to

authenticate potential buyers and provide secure access to their services, such as e-commerce or social media

platforms, and financial institutions.

Identity verifiers

These are organizations that verify the authenticity and accuracy of an individual’s identity information, such as

credit reporting agencies and government agencies.

Artificial intelligence (AI) Governance

Enhanced use of Artificial Intelligence (AI) is increasingly becoming a focal point for governments. Using AI

in Governance and public policy is an excellent opportunity for citizen engagement, accountability, and

interoperability. It is also an opportunity for governments to increase efficiency in governance. Building

resilience toward livability, sustainability, and inclusivity has become crucial, especially in the post-pandemic

era. Artificial Intelligence and Machine Learning open up arenas to build that resilience. It has already found
practical applications in banking, cybersecurity, online customer support across industries, and virtual

assistance.

Applications of AI

Artificial Intelligence, in simple words, is a human-like intelligence demonstrated by machines that perceive,

synthesise and infer information. Telecommunication, finance, healthcare, and defence are some sectors that

have successfully integrated AI to deal with a large amount of data. With its ability to learn, plan and solve

problems, much like humans, it ensures seamless reception and transmission of information, making it a vital

administrative tool that needs to be harnessed. The Indian Artificial Intelligence market is estimated to reach

US$7.8 Billion by 2025.

AI in Governance

Economic viability, social equity, and preservation of the environment are the three pillars of sustainable

development. The use of AI in public administration is essential in bridging the gap between the government

and the people. A highly digitised world has made available a large amount of data and information. Systematic

and ethical use of data promotes intelligent and effective public administration.

One of the most important applications of AI in administration is conducting elections through a computerised

voting system. India is a leading advocate of enhanced use of AI for crime analysis to make the country safer

for women, children, senior citizens, and other vulnerable sections of society. A profound impact of the use of

AI is anticipated in the legal framework with the use of automated legal advice through augmentation tools.

Incorporating new technologies for intelligent public administration has become exceedingly important as we

move towards a digital paradigm and transformation in the era of artificial intelligence. The complex process of

policymaking can benefit from the use of AI techniques such as game theory, decision support optimisation,

data processing, opinion mining, etc. AI technology has the potential to create sophisticated decision models for

government capital planning and budgeting. It can positively impact the evolution of financial systems and

regulations.
In public healthcare, AI techniques can be useful in the prediction of epidemic outbreaks. Valuable public-

private partnerships can emerge as different stakeholders such as government policymakers, hospitals, and IT

firms come together to address the challenges of the present and future.

AI integration in the Information, communication, and technology (ICT) sector can help in improving

communication between the government and citizens. The public sector uses data management tools of AI for

understanding the effects of policy.

One of the first sectors to adopt AI mechanisms is the banking sector. AI is significant in the financial

management of public-private partnership projects.

The Four Key Principles of Responsible AI

Have Empathy

For the Microsoft example, it was Tay’s lack of empathy that caused the issue. The bot was not engineered to

understand the societal implications of how it was responding. There were no guardrails in place to define the

boundaries of what was acceptable and what might be hurtful to the audience interacting with the bot. The

natural language processing error led to a big headache for the company.

Control Bias

AI algorithms make all decisions based on the data at their disposal. In the case of COMPAS, although the

developers had no intention of creating a racist AI, the bias it uncovered was a reflection of the bias that exists

in the natural world justice and sentencing system. Companies need to regulate machine learning training data

and evaluate the impact to catch bias that might have been unintentionally introduced.

Provide Transparency

With negative publicity, it can be a challenge to convince consumers that AI is being applied responsibly.

The Apple Card issue really wasn’t that Apple’s decision-making was biased; it was that Apple customer

service was unsure how to answer the customer’s concerns. Companies must be proactive about certifying their

algorithms, clearly communicating their policies on bias, and providing a clear and transparent explanation of

the problem when it occurs.

Establish Accountability

Facebook took a lot of heat for its refusal to hold itself accountable for the quality and accuracy of the

information being shown in its ads. Regulation around technology issues is always a few years behind the

problem, so regulatory compliance isn’t enough. Companies must proactively establish and hold themselves

accountable to high standards to balance the great power AI brings.

New challenges of Ai and machine learning

The digital revolution has already changed how people live, work, and communicate. And it’s only just getting

started. But the same technologies that have the potential to help billions of people live happier, healthier, and

more productive lives are also creating new challenges for citizens and governments around the world. From

election meddling to data breaches and cyberattacks, recent events have shown that technology is changing how

we think about privacy, national security, and maybe even democracy itself. In this project, we examine

challenges in five key areas that will shape the future of the digital age: justice system, impact on democracy,

global security and international conflict, the impact of automations and AI on the jobs marketplace, identity,

and privacy. Explore provocative and through-provoking topics on how technology impacts our lives

6 AI Implementation Challenges To Keep In Mind

1. Insufficient Or Low-Quality Data

AI systems function by being trained on a set of data relevant to the topic they are tackling. However,

companies often struggle to “feed” their AI algorithms with the right quality or volume of data necessary, either

because they don’t have access to it or because that quantity doesn’t yet exist. This imbalance can lead to

discrepant or even discriminatory results when operating your AI system. This issue, otherwise known as the

bias problem, can be prevented if you make sure to use representative and high-quality data. In addition, it

would be best to start your AI journey with simpler algorithms that you can easily comprehend, control for bias,

and modify accordingly.

2. Outdated Infrastructure
For Artificial Intelligence systems to give us the expected results, they need to process large amounts of

information in fractions of a second. The only way to achieve that is by operating on devices with suitable

infrastructure and processing capabilities. However, many businesses are still using outdated equipment that is

in no way capable of taking on the challenge of AI implementation. Therefore, it goes without saying that

businesses that want to revolutionize their Learning and Development methods with machine learning must be

prepared to invest in infrastructure, tools, and applications that are technologically advanced.

3. Integration Into Existing Systems

Incorporating AI in your training program is much more than downloading a few plugins on your LMS. As we

have already discussed, you need to take extra time to consider whether you have the storage, processors, and

infrastructure necessary for the system to function properly. At the same time, your employees must be trained

to use their new tools, troubleshoot simple problems, and recognize when the AI algorithm is

underperforming. Collaborating with a provider who has the necessary AI experience and expertise can help

you overcome all these issues and guarantee the smoothest transition to machine learning possible.

4. Lack Of AI Talent

While we’re on the subject of expertise, considering how new the concept of AI in learning and education is,

it’s safe to say that finding people with the necessary knowledge and skills is a considerable challenge. In fact,

lack of internal knowledge keeps many businesses from trying their hand at AI. Although searching for a

provider who can transition your company to machine learning is a viable solution, forward-thinking companies

are coming to the conclusion that it’s more beneficial in the long run to invest in your internal knowledge base.

In other words, they suggest training your employees on AI development and implementation, hiring AI talent,

and even licensing capabilities from other IT companies so that you can develop your learning prototypes

internally.

5. Overestimating Your AI System

The technological advancements we have witnessed sometimes lead us to believe that technology can do no

wrong. But AI relies on the data it’s given, and if that isn’t correct, neither will the decisions it makes. A great

AI implementation challenge is that the process of learning is rather complex, especially when trying to
formulate it into a set of data we can import into a system. For this reason, AI explainability is crucial for a

successful transition into machine learning. Breaking down algorithms and training users on the decision-

making process of Artificial Intelligence provides transparency and helps prevent faulty operation.

6. Cost Requirements

Based on everything we’ve discussed so far, it’s easy to understand that developing, implementing, and

integrating Artificial Intelligence into your training strategy won’t be cheap. To get it right, you’re going to

have to collaborate with AI experts that have the necessary knowledge and skills, launch an ongoing AI training

program for your employees, and probably update your IT equipment to be able to handle the requirements of

your machine learning tools. Although it’s impossible to avoid some of these costs, you can definitely minimize

them by looking into budget-friendly training programs or free applications. There are various options available

that can help you figure out which AI capabilities your training program would benefit from before spending

money on acquiring them.

Difference between Data and Metadata :

S.NO. Factors Data Metadata

Data is any sort of information which is

stored in computer memory. This

Metadata describes relevant
1. Concept information can later be used for a
information about the data.
website, an application or can be used in

future.

2. Information Data may or may not be informative. Metadata is always informative.

3. Processing Data may or may not have been It is always a processed data.
S.NO. Factors Data Metadata

processed.

In DBMS data is stored as a file either

4. Storage It is stored in data dictionary.
navigational or hierarchical form.

In DBMS data refers to all the single Metadata refers to name of attributes,

5. Description items that are stored in a database either their types, user constraints, integrity

individually or as a set. information and storage information.

Many different uses can be made of it in In a document, it is the supporting

6. Utilization
the future. data.

No matter the data type or the intended

Depending on the nature and use case,
use case, data administrators may
7. Management data must be stored and managed
make metadata management general
differently.
throughout an organization.

if you create a notepad file the name of

If you create a notepad file, then the the file, storage description, type of
8. Example
content of that document is data. file, size of file all becomes metadata

of your file.

Differential Privacy
Differential privacy is the technology that enables researchers and database analysts to avail a facility in

obtaining the useful information from the databases, containing people's personal information, without

divulging the personal identification about individuals. This can be achieved by introducing a minimum

distraction in the information, given by the database. The introduced distraction is immense enough that it is

capable of protecting privacy and at the same time limited enough so that the provide information to analysts is

still useful.

As a simple definition, differential privacy forms data anonymous via injecting noise into the dataset studiously.

It allows data experts to execute all possible (useful) statistical analysis without identifying any personal

information. These datasets contain thousands of individual’s information that helps in solving public issues and

confine information about the individual themselves.

Differential privacy can be applied to everything from recommendation systems & social networks to location-

based services. For example,

 Apple employs differential privacy to accumulate anonymous usage insights from devices like iPhones,

iPads and Mac.

 Amazon uses differential privacy to access user’s personalized shopping preferences while covering

sensitive information regarding their past purchases.

 Facebook uses it to gather behavioral data for target advertising campaigns without defying any

nation’s privacy policies.

 There are various variants of differentially private algorithms employed in machine learning, game

theory and economic mechanism design, statistical estimation, and many more.

The goals of the Differential Privacy research group are to:

  Design and implement differentially private tools that will enable social scientists to share useful

statistical information about sensitive datasets.

 Integrate these tools with the widely-used platforms developed by The Institute for Quantitative Social

Science for sharing and exploring research data.

 Advance the theory of differential privacy in a variety of settings, including statistical analysis (e.g.

statistical estimation, regression, and answering many statistical queries), machine learning, and

economic mechanism design.

Characteristics of Differential Privacy

Differential privacy has worthwhile characteristics that makes it a rich framework for evaluating the delicate

personalized information and privacy preservation, some are following;

 Quantifying the privacy loss

Under a differential privacy mechanism and algorithms, privacy loss can be measured that enables comparisons

amidst different techniques. Also, Privacy loss is controllable, establishing a trade-off among privacy loss and

accuracy of the generic information.

 Composition

Quantifying loss enables the control and analysis of cumulative privacy losses across multiple computations,

also understanding the behaviour of differentially private mechanisms under composition permits the design

and analysis of compact differentially private algorithms from easier differentially private building blocks.

 Group Privacy
Differential Privacy allows the control and analysis of privacy loss acquired by groups (such as families).

 Closure under post-processing

For post-processing, differential privacy is invulnerable, i.e a data professional cannot execute a function of the

output of a differentially private algorithm without having additional knowledge about private databases and

make it less differentially private.

Benefits of Differential Privacy

Differential privacy has various advantages over traditional privacy techniques;

1. Assuming all available information is identified information, differential privacy knocks out the

challenging tasks considered when identifying all elements of the data.

2. Differential privacy is resistant to privacy attack on the basis of auxiliary information such that it can

impede the linking attacks efficiently that are likely attainable on de-identified data.

3. Differential privacy is compositional, i.e, one can compute the privacy loss of conducting two

differentially private analyses over the same data through summing up individual privacy losses for two

analyses.

The future of data driven Finance

As the pace of change resulting from new business models, shifts in consumer behavior, and economic

uncertainties has accelerated, the role of finance has changed. While 2020 made us wonder what our “new

normal” might look like, 2021 has cemented the fact that we are in (and will likely remain) a state of never-

normal. In this new environment, finance leaders have become more critical than ever in steering the
organization. No longer just a bookkeeping function, finance teams have rapidly evolved to strategic advisors

that actively collaborate with the operating functions to drive the business forward.

The new world of finance is all about data driven decisions. But it’s not just about financial data. Finance needs

to leverage all data: financial, operational, and external.

Now let’s outline how we’re addressing these focus areas with IPM—lowering the data science skills and effort

required for finance to leverage advanced technologies and be a truly data-driven organization.

1. Reimagine your finance model by connecting finance and operations

For finance to become data-driven, they need to connect and align key decisions across finance and operations.

This is where connected enterprise planning really starts to add value. It aligns goals and plans across finance

and operations; importantly, it does so by making sure everyone is making decisions using all the relevant

financial and operational data. This integrated planning process helps finance leaders to become strategic

advisors by partnering with lines of business and operations.

Oracle Cloud EPM delivers a single, unified platform for connected enterprise planning, with built-in best

practices and prebuilt capabilities for all financial and operational planning. It gives you the ability to use AI,

machine learning, and predictive analytics in the context of every financial and operational decision.

2. Empower decision making with data

Every organization is influenced by economic conditions and competitive actions, so external data representing

these factors must be considered when making strategic decisions. Imagine if you could spot trends in customer

sentiment and buying behavior across your product portfolio in different geographies and use that to forecast

demand and financial performance more accurately.

Further, many organizations have invested in data science platforms like AWS, Microsoft Azure ML, Google

TensorFlow, or Oracle Data Science—but they’re often challenged to incorporate these investments in the

context of daily decision-making.

Oracle Cloud EPM is designed to leverage all available data—internal and external. It also provides best-of-

both-worlds flexibility: you can define models locally in Cloud EPM, or import existing models from data

science platforms to enrich your decision making.

3. Automate tasks with intelligent automation

Intelligent automation is the key to freeing up finance to focus on higher-value activities. It’s about reimagining

and modernizing every EPM process using automation, as well as AI and machine learning technologies.

Finance spends an inordinate amount of time preparing and analyzing data to uncover issues, trends, or

anomalies—long before taking any action based on these insights. The more data finance must consider, the

more time and effort this process will take. Clearly, business value comes from acting on the insights, not from

analyzing and reporting on data.

Oracle delivers a key capability—we call it IPM Insights—to automate data analysis and reduce the time spent

from days to minutes. Intelligent algorithms analyze vast amounts of data in the background to uncover

anomalies, trends, and exceptions—allowing finance to focus on collaborative actions that blend data insights

with financial and operational intuition.

In our view, leveraging advanced technologies to help finance become data-driven in all decision-making isn’t

an option—it’s an imperative. In the articles to follow, we’ll discuss the key requirements to become data-

driven and provide more detail on how Oracle can help make your vision a realty.

 At General Assembly we’ve partnered with over 500 global organisations in building a data-driven

workforce. And through this experience we've found three key levers need to be in place to embrace data

with purpose and at scale:

1. Data-Driven Leadership Mindsets: Leaders need to push a data-driven agenda from the top, building

and demanding a culture of data-led decision making. Leadership teams need the ability to use data

effectively, get a working knowledge of the key concepts in data analytics and data science and establish

a framework for ensuring ROI from data projects and investments.

2. Data Science and Analytics skills: Growing your own data scientists and analysts has a myriad of

benefits with the uplift to learning tools and techniques to a practitioner level often being much smaller
 than gaining the business context and institutional knowledge to apply the skills. Upskilling, and even

reskilling, existing, or even prospective, employees is also an efficient and effective way to mitigate the

constrained talent pool and innovate talent pipelines.

3. Data Literacy for the Masses: With all the best will and skill in the world organisations still need to

align their employee bases around the topic. Widespread data literacy and shared vocabulary across

organisations are key, as ultimately almost all employees are either creating or using data in some way.

The Future of Finance: How Data Analytics is Unlocking New Opportunities

Risk Management Reimagined

The use of data analytics in risk management has become increasingly important for financial institutions

looking to stay ahead of potential risks.

By analyzing historical data and identifying patterns, organizations can better predict and manage possible

hazards. This includes assessing the risk of default for loan applicants, detecting and preventing fraudulent

activity, and identifying potential areas of concern in the market.

Due to the significant amount of data available, machine learning algorithms play a crucial role in identifying

patterns and flagging high-risk activities.

Investment Decisions – Beyond Human Capabilities

Data analytics is also revolutionizing the way investment decisions are made. Investors and portfolio managers

can gain valuable insights to inform their investment strategies by analyzing market data and trends.

With the use of advanced analytics such as artificial intelligence, portfolio managers can process different

streams of data, identify patterns, and predict market movements. This allows them to identify opportunities,

spot potential risks, and make well-informed investment decisions.

This approach helps financial institutions to better manage their investment portfolios and generate higher

returns for their clients.

Personalized Experience for Clients

The use of data analytics is not only limited to internal operations of financial institutions but also to improve

the customer experience.

By utilizing customer data, financial institutions can better understand their customers’ needs and preferences.

This includes identifying potential cross-selling opportunities, addressing areas of dissatisfaction, and creating

personalized financial products and services tailored to the specific needs of each customer segment.

Better service to clients and consumers is critical at this time.

According to KPMG, “With some institutions likely to be hit by increased loan losses and falling valuations,

inorganic growth opportunities could also present themselves to strong banks who preserve sufficient capital.”

Benefits of Data-Driven Finance Organizations

One of the major benefits of data-driven finance organizations is the ability to achieve lean cost structures with

more resources committed to value-adding services.

 Automate manual processes like accounts payable processes by using AI to scan invoices and recognize

key information

 Enhanced abilities for forecasting and identifying potential issues at an early stage using digital

assistants

 Increased utilization of automation and cutting-edge technology to enhance productivity and adaptability

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