Financial Technologies - (F) - Q3

Participation Prerequisites

No formal reqirements. However, a basic understanding of money and banking and affinity with IT topics is advantageous.

Course Content

The financial industry had until recently a very high degree of concentration. This situation is rapidly changing as disruptive technologies enable new forms transacting, reduce the barriers to entry and intensify the competition among financial service providers. New and disruptive technologies are leading to major changes in the realms of payments, lending and borrowing, insurance, wealth management, venture capital. To understand these massive changes, we need to have a good understanding of technological innovations as well as of the economics of the financial sector.

This course studies technology-driven innovations in the financial sector; highlighting the potential role and applications of blockchain, cryptocurrencies, and artificial intelligence in various stages of the financial services industry. Such innovations can potentially disrupt existing industry structures, reshape their boundaries, and change the way firms create and deliver products and services. At the same time, they create privacy, regulatory and law-enforcement challenges.

The framework of the course combines three major building blocks:

(1) Two-sided Markets / Platform Businesses: The rise of FinTechs cannot be solely understood by focusing on advances in technology. Equally important is the structure of many financial markets. In the words of Rochet & Tirole "...many if not most markets with network externalities are two-sided. To succeed, platforms in industries such as software, portals and media, payment systems and the Internet, must “get both sides of the market on board.” Accordingly, platforms devote much attention to their business model, that is, to how they court each side while making money overall."

(2) The Role of Technology: We focus broadly on Blockchain and AI, but treat these terms as broad categories within which many finer classifications are useful (such as smart contracts, machine learning and deep learning methods)

(3) Regulation: The emergence of players that offer digitally enabled financial services poses both opportunities and risks at many levels of analysis. Changes in regulatory frameworks will shape various outcomes and are therefore a necessary ingredient for a sound understanding of upcoming developments in this area.

We study these issues in a format, which combines lectures, case studies, and expert opinions and state-of-the-art practices from the industry.

Intended Learning Outcomes and Competencies

Students will be able to understand the global FinTech landscape and describe the role of banks, financial service providers and the customers in shaping and responding to innovation and disruption. In doing so, the students will focus on the blockchain technology and analyze the challenges and opportunities offered by its potential applications. The students will also be able to effectively communicate their analysis by being able to present, discuss, and defend their ideas using appropriate terminology.

Instruction Type

We study these issues in a format, which combines lectures, project work/case studies, and experts from the industry/guest speakers.

Form of Examination

Literature

1. Introduction: Financial Systems, Money, and Blockchain

Böhme, Rainer, Nicolas Christin, Benjamin Edelman and Tyler Moore, 2015, Bitcoin: Economics, Technology, and Governance,Journal of Economic Perspectives29(2): pp. 213-238.

Carnell, Richard Scott and Macey, Jonathan R. and Miller, Geoffrey P., Banks: Fundamental Concepts (October 2016). Carnell, Macey & Miller: The Law of Banking and Financial Institutions (Wolters Kluwer 2017 Forthcoming); NYU Law and Economics Research Paper No. 16-37.

Friedman, Milton and Anna J. Schwartz, 1986, Has Government any Role in Money?Journal of Monetary Economics17(1): pp. 37-62.

McLeay, Michael, Amar Radia, and Ryland Thomas, 2014, Money Creation in the Modern Economy,Bank of England Quarterly BulletinQ1, pp. 14–27.

The Economist, 2015, The Great Chain of Being Sure About Things.

The Economist, 2017, Disrupting the Trust Business.

Varian, Hal, 2004, Why Is That Dollar Bill in Your Pocket Worth Anything?New York Times(January 15, 2004).

2. Emergence of Blockchains and Cryptocurrencies

Haber, Stuart W. and Scott Stornetta, 1991, How to Time-Stamp a Digital Document,Journal of Cryptology3(2): pp 99–111.

Harvey, Campbell R., 2016, Cryptofinance.

Lamport, Leslie, Robert Shostak, and Marshall Pease. 1982, The Byzantine Generals Problem,ACM Transactions on Programming Languages and Systems4(3): pp. 382-401.

Nakamoto, Satoshi, 2008, Bitcoin: A Peer-to-Peer Electronic Cash System.

Narayanan et al, Preface pp 3-22.

3. How do Blockchains Work?

Antonopoulos, Selected parts of Chapter 7 and 8.

Narayanan et al, Selected parts of Chapter 1, 2, and 3.

Turing, Alan Mathison, 1937, On Computable Numbers, with an Application to the Entscheidungsproblem,Proceedings of the London Mathematical Society2: pp. 230–265.

4. Smart Contracts, Ethereum, and the DAO

Buterin, Vitalik, 2014, Ethereum: A Next-generation Smart Contract and Decentralized Application Platform.

Cong, Lin William and He, Zhiguo, 2017, Blockchain Disruption and Smart Contracts.

Khapko, Mariana and Zoican, Marius, 2017, Smart Settlement, Rotman School of Management Working Paper No. 2881331.

Szabo, Nick, 1997, Formalizing and Securing Relationships on Public Networks, First Monday , [S.l.], Sep. 1997. ISSN 13960466.

Szabo, Nick, 1998, Secure Property Titles with Owner Authority.

5. Blockchains, Capital Markets, and FinTechs

Darolles, S., 2016, The Rise of FinTechs and their Regulation,Financial Stability Review20, pp. 85-92.

Goldman Sachs Equity Research, 2016,Profiles in Innovation: Blockchain.

Philippon, Thomas, 2017, The FinTech Opportunity, BIS Working Papers, No 655.

Yermack, David, 2017, Corporate Governance and Blockchains,Review of Finance21(1): pp. 7–31.

Hinkes, Andrew M., 2016, A Legal Analysis of the DAO Exploit and Possible Investor Rights, Bitcoin Magazine.