Fintech Week

Sri Krishnamurthy, CFA, CAP, Heather Brilliant, CFA, Stefan Jansen, CFA, Paul Kovarsky, CFA, from Kaplan Professional & John L Bowman, CFA from CAIA Association, discussed their career path, the role of data as an ubiquitous yet neutral element in financial markets, and how human knowledge can untap alpha for investors. They also discussed how CFA charterholders and candidates can navigate an increasingly data-intensive job marketplace and environment: given the breadth and depth of the program, CFA charterholders bring a unique voice to data analysis. Speakers also shared their experience on how data and technology permeates and penetrates all activities and processes in the investment industry. Speakers also discussed that the real value no longer comes from data itself or computers’ processing speed or algorithms, where firms are increasingly converging, but from the ability of analysts to interpret information correctly.

Fabien Legland, CFA, Nikki Freeman, CFA, and Jacquelyn Lipson, CFA, discuss digital transformation, how technology can enable and strengthen diversity, and how fintech itself can increase financial inclusion and economic development. Participants agreed that fintechs and banks are both complementary and rivals depending on the issue. Along the same lines, participants agreed that in-house development, partnerships, or open platforming are valid strategies.

SPEAKERS

Moderator: Eric Lebovich, CFA

Panelist: Rajesh Damarapati, CFA

Panelist: Cristina Pieretti, CFA

Panelist: Philip Snow, CFA

Lebovich: What has changed in the past year?

• Pieretti
  • Technology has changed which improved productivity
  • Integrating data in ways clients want to see is more important than ever
• Snow
  • Delivering what clients want is important
  • Urgency in creating technology for clients in ways that they would like to consume
  • FactSet is agnostic in ways of delivering data and analytics to clients
• Damarapati
  • Structural shift as people are more comfortable with remote working
  • Companies change fast in onboarding new employees remotely
  • Cloud adoption: moving computing workload and even workstation to cloud

Lebovich: Data has historically lived in firms. How clients use of data has evolved?

• Snow
  • More data, consumed in more efficient ways
  • Alternative data, need to tie data together (e.g. working with Snowflake to store data for analysis)
• Damarapati
  • Data is a byproduct of business operations/transactions
  • Data warehouses came into being: very expensive -> data lakes (store data at a lower cost point)
  • Risk and data security; lack of common language -> strong data foundation and data culture needed

Lebovich: How data has changed within your organization?

• Pieretti
  • 20 acquisitions since I joined Moody’s Analytics
  • Good data live in different parts of the organization
  • In process of putting data in the same place -? less silos
  • Customer demand for consuming data through API

Lebovich: Who are different types of consumers? How programming has changed?

• Damarapati
  • Started Python journey in 2011 at Bloomberg
  • Python has evolved from scripting, to modeling, and to data science language
  • Data lakes: cheap storage
  • People move to lake houses: more data, more computing capability, user-friendly so everybody can go there

Lebovich: Newer data set and alternatives?

• Snow
  • Alternative data will become fundamental to all financial analysts
  • Marketplace in the cloud: engineers load in the system; practitioners look at and engage with them (more productive process)
  • Big push to private markets

Lebovich: How did client demand change for Moody’s?

• Pieretti
  • Clients wanted more real time predictive analytics
  • Also, real time data (e.g. foot traffic data, sentiment score)
  • Change in sourcing of data: new construction data in commercial real estate moved from in-field works to satellite

Lebovich: How do data trends impact product development cycle?

• Snow
  • Products are changing: for clients to build workflows, to customized AI advice (e.g. advisors’ dashboard that tells advisors what to do based on news flows, holdings, etc)
• Cristina
  • Machine learning; private property business

Lebovich: How do you incorporate third party data?

• Phillip
  • Open FactSet marketplace
  • Tools for clients to integrate data
• Pieretti
  • Will integrate whatever makes sense for customers
  • Not about making them available, but putting them together

Lebovich: How is enterprise demand?

• Damarapati
  • Matching different datasets, NLP
  • Google: payment services in Europe
  • Insurance companies: provide info for small businesses in a timely fashion
  • People build data lakes, buy gold mines, and want them easily accessible

Lebovich: How is data being digitalized differently?

• Snow
  • Sector data in real estate and mining; being able to show them on a map makes it much easier to consume
  • Trend of unbundling FactSets platform; now using third-party tools
  • Allow people to use it in other platforms (e.g. CRM)
• Pieretti
  • Customized data sets; ability to unbundle and integrate is critical

Lebovich: How can data be presented and worked on differently?

• Damarapati:
  • Workbooks, views
  • Business users want to get notifications / alert when something goes wrong, and allow users to do customization

Lebovich: How customer requests have changed?

• Pieretti: Customers need quick summary, being able to take a snapshot of what’s happening in markets

Lebovich: How did you help users cut through the noise

• Snow
  • Predictors of which companies to be added to S&P
  • Who are about to issue debt soon

Lebovich: How do regulation and compliance impact data?

• Pieretti
  • Already a heavily regulated industry
  • Separating businesses of 1) fulfilling regulatory requirement 2) addressing customer needs

Lebovich: How did your end users change in terms of their regulatory requirement?

• Snow
  • ESG will be part of everybody’s focus
  • Important to get educated

Lebovich: How do you see workplace in the future?

• Damarapati
  • Some miss going to the office because 1) we are social animals 2) working in the same place helps productivity
• Snow
  • We saw the benefits of WFH
  • Not need for as much space as we used to
  • People would go to office for specific tasks, but not just for the sake of going
  • How we construct teams and service clients will be critical
  • It opens up talent fields
• Pieretti
  • Much more flexible about going to the office
  • More hoteling
  • Cost saving in office space / property

Lebovich: Any advice for charter holders to move from traditional roles to data roles?

• Damarpati
  • I came from a technology background
  • Advantage of being a translator
  • Good foundation in business domain helps
• Snow
  • Everybody will become more technical
  • Convergence of technical and quant
• Pieretti
  • Technology is not optional anymore
  • Everybody has to be flexible and embracing changes/evolutions in data

Technology is driving an unprecedented rate of change in asset management, and no part of the industry is immune. This panel discussed how it’s transforming fundamental investing and how the tools and techniques historically used only in quantitative investing are increasingly being integrated into fundamental investing.

It all starts with data. There has been an order-of-magnitude increase in the amount of data available to fundamental asset managers. Whether it’s screen scraping airline seating patterns, using satellite data to count cars in parking lots or analyzing bulk credit card transactions, the “alternative” data sources offer myriad opportunities to identify investable events – if asset managers know how to use them.

Fundamental asset managers are plugging quantitative techniques into their process in a variety of ways. Some examples include:

• Industry trends: Gone are the days when analysts relied on issuers for data about their target markets. Now analysts are expected to have things like demographics surrounding retail store footprints.
• Surveillance: Alternative data can provide signals of inflection points in market demand, particularly when sources are combined to identify changing correlations.
• Cluster analysis: Quantitative techniques can be a great way to compare firms of different types in response to an event (eg. Pandemic winners and losers).
• Risk analysis: Stock-picking can often have unintended risk consequences at a portfolio level that quantitative techniques are well suited to identify.

Firms need to be intentional about combining quantitative and fundamental investing processes. You can’t just throw data at the problem and magically get an answer. You need some prior knowledge and a starting point. Also, data sets vary by industry so the domain expertise and contextual knowledge of fundamental analysts needs to guide data sourcing and analysis. It’s important to be clear on what questions you want to ask to identify which parts of a data set are relevant. Portfolio Managers who have a strong understanding of their process are better positioned to embrace quant techniques because they understand what gaps need to be filled; when they ask a question of the data, they know what they’re going to do with the answer.

As often happens with industry innovation, regulation has lagged in the alt data space – but it’s catching up quickly. In particular, privacy regulation is shaping the landscape because so much alt data is created from the digital exhaust created by other industries. For example, Google and Apple are modifying how they collect location data, and this is changing attributes of the data itself. Analysts need to understand these nuances to use the data effectively.

Combining fundamental and quantitative techniques can be a powerful enhancement to the asset management firm; however, doing so requires culture change in both disciplines. Quants bring statistical rigor, automation, speed and the ability to work with large data sets. Fundamental analysis brings domain expertise and contextual knowledge to assess how the future might differ from the past. Investment decisions are enhanced by bringing the two together, but it’s a big change for both. Like most other changes, success requires well functioning, cross-functional teams that collaborate well. The best way to start is to walk before you try to run; start small, find tangible successes, and build as you go.

Drawing on the findings from the CFA Institute’s Future of Finance research, this panel discussed how the three pillars of the investment industry – product, distribution and business model – are all changing simultaneously. Technology is the root cause of most of this change, and it’s impacting everything – talent, most of all.

Technology is enabling new ways of doing business that are fundamentally re-shaping the industry.

• First, it’s accelerating the commoditization of traditional investment products. Asset owners now have the capability to replicate many products in-house. It’s has also reduced barriers to entry for small firms to launch innovative niche products.
• Second, by condensing products and client needs down to core attributes, technology is enabling data-driven personalization. This is a much more scalable process than traditional method that relied on labour-intensive relationship-based discovery.
• Third, technology is changing the skills investment professionals need to be successful. While quantitative skills have always been central to the profession, the ability to manage large data sets is becoming increasingly critical. This implies the use of new tools; whether it’s a relationship manager using advanced CRM capabilities or an analyst coding in Python, technology is requiring everyone to cultivate new skills. Perhaps most importantly, leaders need to understand enough about all these tools to guide where their firms invest and how they develop the talent needed to compete.

The expanded role of technology in the industry is driving three overarching trends:

• Shift from products to solutions – This has been talked about for a while; however, doing it in a meaningful way is becoming more important as technology helps firms deliver on this promise.
• Disintermediation – There’s currently a lot of friction in the process of identifying client needs and matching them to solutions, but the tide is starting to turn. Clients recognize that it’s more efficient for service providers to use data to understand their objectives and needs, and once that is codified, you can use technology to match solutions to those needs. This points a fundamental shift in the distribution model.
• Changing business model – Clients are attaching value – and fees – to different things. The clearest example of this is robo-advisors moving from bps on AUM pricing to subscription fees. In institutional circles changing priorities are evident in the latest Future of Finance survey, which found that asset owners have greater trust in firms that use more technology in their investment process. The need to invest more in technology is shifting the cost structure of asset management firms more toward fixed investment, which in turn is increasing the benefits of scale and accelerating industry consolidation. Top 5 global firms had 20% market share in 2020, up from 14% in 2010.

The most powerful insights from this panel were about the impact on industry talent. Three important talent trends were discussed:

• T-shaped skills – This refers to people who have a combination of deep tech knowledge in some area as well as breadth of understanding across a variety of areas. This is the most prized skill in investment firms today. Given the growing importance of technology in the industry, Charterholders need to add tech skills to their “T”.
• Teams – 75% of funds in US are managed by Teams. Study after study shows that firms with diverse teams – cognitive style, age, ethnicity etc. – innovate more and perform better
• Purpose – Gen Y/Z are much more focused on organizational purpose and values than previous generations. Firms will need to ensure clarity about their purpose and how they add value for clients to attract the best talent.

Given these changes, the investment firm of the future could look quite different than it does today.

Drawing on the findings from the CFA Institute’s Future of Finance research, this panel discussed how the three pillars of the investment industry – product, distribution and business model – are all changing simultaneously. Technology is the root cause of most of this change, and it’s impacting everything – talent, most of all.

Technology is enabling new ways of doing business that are fundamentally re-shaping the industry.

• First, it’s accelerating the commoditization of traditional investment products. Asset owners now have the capability to replicate many products in-house. It’s has also reduced barriers to entry for small firms to launch innovative niche products.
• Second, by condensing products and client needs down to core attributes, technology is enabling data-driven personalization. This is a much more scalable process than traditional method that relied on labour-intensive relationship-based discovery.
• Third, technology is changing the skills investment professionals need to be successful. While quantitative skills have always been central to the profession, the ability to manage large data sets is becoming increasingly critical. This implies the use of new tools; whether it’s a relationship manager using advanced CRM capabilities or an analyst coding in Python, technology is requiring everyone to cultivate new skills. Perhaps most importantly, leaders need to understand enough about all these tools to guide where their firms invest and how they develop the talent needed to compete.

The expanded role of technology in the industry is driving three overarching trends:

• Shift from products to solutions – This has been talked about for a while; however, doing it in a meaningful way is becoming more important as technology helps firms deliver on this promise.
• Disintermediation – There’s currently a lot of friction in the process of identifying client needs and matching them to solutions, but the tide is starting to turn. Clients recognize that it’s more efficient for service providers to use data to understand their objectives and needs, and once that is codified, you can use technology to match solutions to those needs. This points a fundamental shift in the distribution model.
• Changing business model – Clients are attaching value – and fees – to different things. The clearest example of this is robo-advisors moving from bps on AUM pricing to subscription fees. In institutional circles changing priorities are evident in the latest Future of Finance survey, which found that asset owners have greater trust in firms that use more technology in their investment process. The need to invest more in technology is shifting the cost structure of asset management firms more toward fixed investment, which in turn is increasing the benefits of scale and accelerating industry consolidation. Top 5 global firms had 20% market share in 2020, up from 14% in 2010.

The most powerful insights from this panel were about the impact on industry talent. Three important talent trends were discussed:

• T-shaped skills – This refers to people who have a combination of deep tech knowledge in some area as well as breadth of understanding across a variety of areas. This is the most prized skill in investment firms today. Given the growing importance of technology in the industry, Charterholders need to add tech skills to their “T”.
• Teams – 75% of funds in US are managed by Teams. Study after study shows that firms with diverse teams – cognitive style, age, ethnicity etc. – innovate more and perform better
• Purpose – Gen Y/Z are much more focused on organizational purpose and values than previous generations. Firms will need to ensure clarity about their purpose and how they add value for clients to attract the best talent.

Given these changes, the investment firm of the future could look quite different than it does today.

SPEAKERS

Moderator: Noelle Acheson, CFA

Panelist: Danielle Martell, CFA

Panelist: Brice Wilson, CFA, CPA

Panelist: Emi Yoshikawa, CFA

Acheson: What have each of you focused on in the industry? What made you interested?

• Martell
  • Focus on helping businesses transform through innovation (e.g. ecosystem transformation enabled by blockchain technology)
  • Also work on Central Bank Digital Currency (CBDC) and digital dollar projects
  • Different aspects of emerging new tech drove initial interests
• Yoshikawa
  • Ripple is a global payment network that provides access to liquidity on demand
  • Focus on interesting fields such as gaming, micro payment, and NFTs
  • Went to business school after financial crisis and learned about bitcoins; curious about new technology and wanted to be part of infrastructure construction
• Wilson
  • XBTO was founded in 2014 and has since grown horizontally and vertically
  • Many products offerings: US futures and options, as well as other derivatives
  • Also involved in asset management, venture capital, and mining businesses
  • Initially saw the gap in crypto technology and product offering, so joined the industry

Acheson: What’s the most interesting aspect of the industry?

• Martell
  • CBDC: BIS study suggests 70% of central banks are engaged + recent news on China and Sweden
  • Frustration about settlement window could lead to tokenization of securities, not a question of if but when
• Yoshikawa
  • Bitcoin cut the middlemen, and DeFi (blockchain-based form of finance that does not rely on central financial intermediaries) took it to the next level
  • DeFi has $55b assets now, compared with <$1b a year ago
  • DeFi welcomes different types of offerings (not a winner-take-all situation at all), and encourages customers to customize products based on their needs
  • Many opportunities in the space, as traditional financial companies have come
• Wilson
  • DeFi’s $55b is like a lending pool that is not subject to traditional banking fees and capital requirement
  • T+0 settlement would be great for the industry and society

Acheson: how would US react to China’s development of its CBDC?

• Martell: being right is more important than being first

Acheson: why do you think stable coins are key of DeFi?

• Wilson
  • Institutions create tokens and move them around
  • Transactions are quick and efficient
  • More transparency (versus traditional papers trails are hard to track once they leave the US)

Acheson: What are the advantages of digital dollars?

• Martell:
  • Stable coins still subject to the underlying entity, versus digital dollars are the dollars (same status as physical dollar in your wallet, not just a representation)
  • Digital dollars would drive innovations, create more flexibility (e.g. person-to-person payment, remittances, B2B payments)

Acheson: Why do we want tokenized assets?

• Yoshikawa:
  • They have underlying assets behind blockchain (e.g. NFTs)
  • They are transparent, immutable, and liquid (because they can be fractionalized)
  • NFT offers new ways to connect with the creators/artists, and let people express feeling and emotions

Acheson: Where do you see NFTs going?

• Yoshikawa
  • Initially came out in 2017 (CryptoKitties), soon got dismissed
  • NBA Top Shot very popular now
  • Still some issues but expect markets to continue to expand and evolve
  • WEF: 1% of GDP tokenized -> 10% by 2027

Acheson: What are some risks?

• Wilson
  • NFT is very broad: currency, security, art, etc.
  • Optimistic about the investment side (price discovery very efficient)

Acheson: What are some regulatory risks in DeFi?

• Wilson
  • Commodity regulations still in place in most cases
  • Be mindful of different jurisdictions

Acheson: how do digital assets that have functionality (e.g. art) impact currency?

• Martell: Programmable money a possibility (e.g. digital allowance to kids only to be used on certain things)
• Acheson: News/rumors that China would create digital currency with expiration date (if true) would affect the velocity of money

Acheson: Do you expect that we have different types of money?

• Yoshikawa
  • Yes, because the definition of value gets broadened (e.g. emotions)
  • Expect more transactions in the future

Acheson: What’s your view on bitcoins on the balance sheet?

• Wilson
  • Hedge funds and corps can buy bitcoin futures (cash settled)
  • Bitcoins are not going away
  • More regulation can be done and will be done

Acheson: What’s the biggest change in the past year? And this year?

• Yoshikawa
  • Past Year: People are paying more attention; Crypto Climate Accord to reduce carbon/climate impact
  • Next year: How corporates use bitcoins (e.g. Tesla and Chipotle start to accept bitcoins, Japanese companies pay XRP as dividends)
• Martell
  • Past Year: More talks around how institutions should play cryptocurrency
  • Next year: Cryptocurrency’s impact on corporations’ balance sheets as they start investing
• Wilson
  • Past year: Price of bitcoin
  • Next year: Stable coin

During the Breakthrough Innovation: A Sneak Peek Fireside Chat session, Peter Sermetis, CFA, was interviewed by Valisha Graves. Peter is a Global Account Manager at AWS. He is an expert at leveraging his diverse customer and technical expertise in directing the development and delivery of global teams to address business needs for Financial Services clients transitioning to the cloud.

During the fireside chat, Peter and Valisha discussed:

• Who are the Cloud providers?
• How disruptive is the cloud?
• What are the Cloud transitioning strategies?
• How Secure is the Cloud?
• IT Democratization.
• The Future of the Cloud.
• Recommendations to CFA Charter holders.

Who are the Cloud providers?

To no one’s surprise, Cloud adoption accelerated during the pandemic.  The cloud’s elastic supply characteristic has allowed both small and large participants an easier access to IT infrastructure at both a small and large scale. The days of capital budget planning around IT infrastructure spending has changed permanently. The cloud’s persistent global presence in all regions of the globe has increasingly allowed unfettered access to IT resources. The three cloud providers included were Amazon AWS, Microsoft Azure, and Google. Peter informed participants that the providers had similar product offerings to each other.

How disruptive is the cloud?

Pressure from start-ups has forced faster innovation. Today’s cloud services differ from prior co-location services as the hardware aspect of the infrastructure is no longer a responsibility of the customer. Compute, storage, and networking infrastructure are provided as opposed to co-location services that hold the customer accountable for the hardware purchases.

As mentioned earlier, the capital budgeting process is shifting from capital expense decisions to operating expense planning. The “pay-as-you-go” or by utility pricing has become the norm.

What are the Cloud transitioning strategies?

The new utility pricing and service offerings allow for supply elasticity to meet volatile demand. The elastic nature of the cloud allows smaller firms to adopt newer technologies more rapidly by not being subject to the baggage of difficult to maintain legacy systems. 

While slower to adopt, larger firms are still accelerating their adoption by starting new lines of business and transferring legacy businesses to the cloud. The approaches firms are taking with their legacy business varies from lift-and-shift methods to more methodical re-designed applications for the cloud.  Peter noted that most successful transitions by large firms start with an executive committee mandate that focuses on cost driven and operational flexibility initiatives. 

How Secure is the Cloud?

Security priority has not changed in the cloud. In order to reduce the risk, firms are starting with initiatives that are usually focused on smaller applications. To become more comfortable with understanding how to operate in the cloud. As a result, data encryption importance has increased with cloud adoption.

IT Democratization

Peter and Valesha both agreed that smaller firms have increased access to services at scale and have geographically dispersed businesses to be more common.  Friction has been reduced as access to data and tighter collaboration with partners are sometimes eliminated as barriers to entry are lowered. More specifically, as the prevalence of cloud created businesses, it has increased the ability to share partner resources and take advantage of network proximity.

The Future of the Cloud

Peter predicted that cloud providers’ product offerings will mature to more integrated service offerings. Peter also promoted the idea of more accessible quantum computing availability to a larger audience of customers.

Recommendations to CFA Charterholders

Peter mentioned that the typical CFA charter holder should leverage their domain expertise. as it relates to understanding the economics of companies and how a firm’s procurement of technology can impact on the business model of potential investments. Peter also stressed the importance of charter holders experimenting with cloud services and offerings such as ML. Several on-line training resources were mentioned such as A Cloud Gure and Cloud Academy.

On the last day of Fintech Week, Joyce Li, CFA, presented an overview of the Fintech trends and opportunities in Asia.

Joyce is a Portfolio Manager at Matthews Asia. Joyce’s presentation began with a personal story of witnessing the mass confusion from the demonetization that took place in India in 2016. India’s economy was largely dependent on cash and the decision to allow 2 months to convert or cancel their INR 500 and INR1000 notes created chaos. The government’s currency cancellation policy was said to combat black market activity and counterfeit bills. Subsequent to the hectic demonetization, a universal identification system was implemented. The advanced identification system became the start of a destination for future FinTech investments.

Joyce’s presentation highlighted Asia FinTech growth opportunities in China, India, and South Korea. While differing by country, Asia’s middle class is growing fast. The rapid emergence of Asia’s middle class is bringing far-reaching economic change, creating new FinTech opportunities for domestic and international companies.

Companies such as PolicyBazaar have flourished in India given the extremely low penetration of credit and the absence of “super apps” that are more prevalent in China. India’s rising demand from and expanding middle class is fostering new payment applications from upstarts.

This is not the case in China where payments innovation has little room for new entrants. Providers such as AliPay and its international e-wallet partners have dominated the FinTech landscape with super-apps. While the regulatory environment lacks innovation, there is a growing threat that increased regulation will become the norm. In general, most recent regulatory measures have focused government efforts to increase financial inclusion.

Joyce also touched upon several aspects of crypto currencies. Asia was one of the earlier adopters in the form of asset accumulation and farming of crypto. Governments, especially China, are very careful about large scale adoption. These governments are struggling to figure out how crypto fits into financial inclusion.

While recent government actions have focused on providing better oversight of capital ratio requirements, some conference participants expressed concerns about recent regulatory actions becoming too harsh. The general tone of questions and recent government actions have most market participants expecting more stringent regulatory requirements in the future. That being said, Joyce mentioned most governments’ actions have primarily been aimed at protecting their financial systems and providing a fair competitive landscape for new and existing participants.

The wealth management business in Asia was also covered. Outside of Singapore and Hong Kong, wealth management is a growth business in Asia. The fast-changing demographics have created growth opportunities and are leading to partnerships in financial services that incorporate new products. Lowering middle-man costs are increasing the adoption of financial services.

The Future Fintech Panel was hosted by Gwen Cheni, CFA. Gwen is a partner at IndieBio where she advises and invests in companies at all stages of growth. 

The panel included Katya Chupryna, CFA, Jonathan Soberg, CFA, and Praveen Joseph, CFA. Katya is part of Citi’s SPRINT (Spread Products Investment Technologies) team which invests in fintech companies that provide strategic relevance and next-generation solutions to credit markets. Jon is a managing partner at MS&AD Ventures, which is an early-stage venture capital firm focused on the future of finance, risk assessment, and building a sustainable society. Praveen is the Head of US Securitized Credit and a Principal Data Scientist at the World Bank Group (IFC).

The first topic discussed by the panel was dominated by an overview of credit markets.  The credit discussion started with automating the loan process by using ML to underwrite loans without people. One of the key benefits mentioned for automating the loan underwriting process was the ability to reduce the relative cost of making smaller loans and the efficiency of the data intensive underwriting policy. Katya referred to credit market maturity as one of the underwriting constraints impacting the data availability of lending criteria.  Katya referred to the lack of credit score markets such as Latin America as an example of markets where alternative data sources are more necessary in the underwriting credit process. Besides creditor data availability, Praveen highlighted to the group how managing pools of loans by new credit investors is becoming more feasible by using deep learning to control credit risk. Some of the new credit strategies include using natural language processing and increasingly incorporating reinforcement learning models as new technologies to modeling credit risk.  

When it comes to fintech know-how, the panel explored the make-or-buy decision. Should large banks decide to build or buy fintech expertise? Katya pointed out that it is very difficult to find fintech start-ups that are specifically trying to solve the exact problems confronting larger banks. More partnering was suggested as an alternative that banks should explore. The term “build and buy” or building an ecosystem with the latest technology best practices at smaller startups is being explored by some larger banks. From a strictly venture capital perspective, Jon intentionally avoids any new venture that is specifically built to be sold to a larger bank. In general, the panel didn’t believe larger banks were capable of building what start-ups could build more quickly.

The panel also discussed the sourcing of data and building ML models. Building technology to source data was discussed. The limited availability of pre-trading data and the difficulty of using sparse secondary trading data appears to be a major blocker for many fintech initiatives.

There was general consensus that most firms had a skill shortage of expertise in building and maintaining ML models. One of the panel’s recommendations to the group was to increase the machine learning content in the CFA charter holder curriculum.

In the future, access to resources is expected to become more available for building fintech focused ventures as IOT devices are allowing for more innovation in products and opening up markets to more investment products. Besides the automated loan process discussed earlier, Jon mentioned his experience with a recent investment in an insurance underwriting start-up that had alternative data adjusting risk measures based on automated capturing of risk data from IOT devices.

The panel concluded the discussion by mentioning the availability of low-code or no-code in creating new fintech ventures.  The software and compute environments are evolving to platforms where components and ecosystems with libraries of components are more readily available than the past. The last and final topic touched upon was the idea of “streaming money” where real-time settlement would upend current credit card settlement systems.