Foundations of FinTechSpring 2020Undergraduate (UG)Tuesdays and ThursdaysUG Mult. 80.001: 11:00 am- 12:15 pmClassroom KMC 3-50Professors:Kathleen DeRose ([email protected])Hanna Halaburda ([email protected])Teaching Fellow: Yuhao Ding, [email protected] Yang: [email protected]: If you need to email the Professors or the TF please use the above emails and include“UG Fintech” on the subject line of your email.Pre-requisite: Foundations of FinanceCourse Description:“FinTech” refers to financial sector innovations involving technology-enabled businessmodels that can facilitate disintermediation, revolutionize how existing firms create anddeliver products and services, address privacy, regulatory and law-enforcementchallenges, provide new gateways for entrepreneurship, and seed opportunities forinclusive growth.1See: timemba/academics/specializations/fintech111

FinTech is also the label for increasingly technological approaches to the main financialintermediation functions: payments, capital raising, remittances, managing uncertaintyand risk, market price discovery, and mediating information asymmetry and incentives. Intoday’s FinTech businesses, consumers bank via mobile apps integrated into social media,institutions trade electronically, and robo-advisers make decisions about investmentportfolios.This inter-departmental course provides an introduction to the emerging FinTech discipline.It is intended to be the starting point for Stern students who may take additional electives inthe FinTech area, while also providing an overview of the area for students who intend totake only one FinTech course.The course will study: How is financial innovation different than industrial innovation? How is financialinnovation evolving? What are the light sides and dark sides of financial innovation? Will traditional financial intermediaries be able to adapt? Or will upstart FinTechsdisrupt them, re-imagining business models just as Amazon reshaped book-sellingand Uber transformed taxi-rides? What are the critical technology strategies and foundational technologies inFinTech? What are the core and novel sources of FinTech data, how are theymanaged? How is data visualization evolving? What are the primary FinTech datascience methods and tools? How do they apply to real FinTech problems andquestions today? How is FinTech reconfiguring financial services business models? What are the keydisruption points? What determines success in FinTech? Where are the limits, risks, and broader policy and social implications of FinTech?Grading:30% Case study questions15% from technology fundamentals (classes 3-13)15 % from fintech case studies (classes 16-20)35% Midterm: March 24, in class. Note this is AFTER Spring Break35% Final Exam: TAKE HOME EXAM DUE TBD during exam period10% or - : Class attendance and participation. Note that class attendance is required.Your grade will be adjusted up or down to reflect participationAssignments must be posted to NYU classes. No email submissions. PDFs only. Assignmentsare due before class. That means 10:45 am the day of class. Please check time deadlinescarefully as no late submissions are accepted since we review answers in class. Grade curveis not final until end of semester. There will be no makeup assignments.Course Readings:2

Please see both the syllabus below and NYU Classes for required reading. Not all readings areposted in classes, and you may have to access the reading yourself or via a syllabus link. Youare responsible for all the indicated readings regardless of their location. We’ve markedreadings as essential and optional. Because fintech is evolving rapidly, we occasionally postadditional readings or links to the NYU Classes site resources folder or via announcements.Note on Case Studies:This class includes several case studies. Cases are due before class by NYU classes. We reviewanswers in class, and therefore do not accept late submissions. We also do not accept emailsubmissions.Case question write-ups should use analytical writing. Qualitative work requires strong logicalreasoning. The following general outline is useful: hypothesis or research question/statement,data, evidence, argument (including rebutting the counter argument), limitations, andconclusions.The Proprietary Fintech Cases and the group and individual exercises in the second half ofthe class prepare you for an applied understanding of Fintech in the real world. The caseassignments are posted at the start of the semester. The proprietary cases arrive quickly afterthe midterm so please prepare yourself.General Conduct and Behavior:Students are expected to maintain and abide by the highest standards of professionalconduct and behavior. Please familiarize yourself with Stern's Policy in Regard to In-ClassBehavior & Expectations and the NYU Disruptive Behavior Policy.In particular this means: (a) attendance is mandatory; participation is expected, (b) arriveon time for class, arriving late will affect your class participation grade, (c) no personal useof electronic devices in class (d) display your name cards at your seat so the instructor canget to know you, (e) there will be NO makeup assignmentsAcademic Integrity Above All:Integrity is critical to the learning process and to all that we do here at NYU Stern. Asmembers of our community, all students agree to abide by the NYU Stern Student Code ofConduct, which includes a commitment to: (a) Exercise integrity in all aspects of one'sacademic work including, but not limited to, the preparation and completion of exams,papers and all other course requirements by not engaging in any method or means thatprovides an unfair advantage. (b) Clearly acknowledge the work and efforts of otherswhen submitting written work as one’s own. Ideas, data, direct quotations (which should bedesignated with quotation marks), paraphrasing, creative expression, or any otherincorporation of the work of others should be fully referenced. (c) Refrain from behaving inways that knowingly support, assist, or in any way attempt to enable another person toengage in any violation of the Code of Conduct. Our support also includes reporting anyobserved violations of this Code of Conduct or other School and University policies that aredeemed to adversely affect the NYU Stern community.The entire Stern Student Code of Conduct applies to all students enrolled in Stern coursesand can be found here:3

To help ensure the integrity of our learning community, all assignments that you submit viathe course’s NYU Classes website will be routed through Turnitin, which will compare yoursubmission to a database of prior submissions, current and archived Web pages,periodicals, journals, and publications. Your document will automatically become part ofthe Turnitin database.Students with Disabilities:If you have a qualified disability and will require academic accommodation of any kindduring this course, you must notify the instructor at the beginning of the course (within thefirst week) and provide a letter from the Moses Center for Students with Disabilities (CSD) atTel. (212) 998-4980 or verifying your registration and outlining theaccommodations the Center staff recommends. If you will need to take an exam at theCSD, you must submit a completed Exam Accommodations Form (EAF) to them at leastone week prior to the scheduled exam time to be guaranteed the alternative venue.Other:We adhere to the Stern policies regarding any exceptions (religious etc.), which must bearranged the first week of class, subject to the conditions above. We do not give substituteor makeup assingmentsBasic Course Structure:Theory and History: Tech innovation in financial services (Week 1)Basics of Fintech Tech, Methods, and Data: Blockchain and Machine Learning (Week 2-7)Fintech Disruption: Venture Capital, Incumbents, and Startups Case Studies (Week 8-10)Fintech Limits and Risk: Valuation and Unicorns, Regulations, cyber (Week 11-12)Fintech Broader Implications: Financial inclusion, Behavioral fintech, AI/Surveillance(Week 13-14)Class slides:Posted in NYU classesOverall sources with good fintech news listed below. You can usually get a free trialsubscription:CB Insights https://www.cbinsights.comPitchbook https://pitchbook.comThe Financial Times https://www.ft.comOverall books (some of these are expensive, so they are optional):This is the best book that explains how things actually work in the five financial functions:Randall E. Duran: Financial Services Technology: Processes, Architecture, -Technology-ProcessesArchitecture/dp/98147808634

The Book Bye Bye Banks (after the midterm) is available on Amazon for 6.00 so we did notorder it from the bookstoreRed Thread:In the first class, we introduce the idea that technology transforms financial activities,potentially benefiting all participants. During the semester, we will follow a “red thread”about automating investment management.Syllabus:Week 11. Jan 28: KTD and HH: Course Introduction: The Fintech Opportunity The Economist, To Do With the Price of Fish,, Zvi, and Merton, Robert C. 1998. A Conceptual Framework for Analyzing theFinancial on/228224831 A Conceptual Framework for Analyzing the Financial Environment Citi GPS, 2016, Digital Disruption: How FinTech Is Forcing Banking to a Tipping Point,available at sight/citi-gpsdigital-disruption.html OPTIONAL READINGSJensen, Robert. (2007). The Digital Provide: Information (Technology), MarketPerformance, and Welfare in the South Indian Fisheries Sector. The Quarterly Journalof Economics. Available at: dian-fisheries.pdfPhilippon, Thomas. 2018. The Fintech Opportunity. NBER Working Paper. tphilipp/papers/FinTech.pdf 2. Jan 30: HH: Encryption and Information Security, part 1 Panayotis Vryonis, Public-key cryptography for non-geeks. August 28, 2013. Availableat tography-for-non-geeks. The Mozilla Foundation, Encryption and Decryption. Last updated June 4, 2015.Available at curity/Encryption and Decryption. The Mozilla Foundation, Introduction to Public-Key Cryptography. Last updatedMarch 21, 2015. Available /Security/Introduction to PublicKey Cryptography. RECOMMENDED: watch the movie “The Imitation Game”Week 23. Feb 4: HH: Encryption and Information Security, part 24. Feb 6: HH: Bitcoin BasicsMichael Scott, The Essence of the Blockchain. Published 30 August 2016. Available ing f-4487-b0f3-b251481190c8Chapter 2: Blockchain Technology, in Matteo Biela and Vittorio Zinetti, Blockchain5

Technology and Applications from a Financial Perspective. Available from NYUClasses.Guillaume Haeringer and Hanna Halaburda, Bitcoin: A Revolution? Published inDigital Economy 2018. Available on act id 3133346 Notice that eventhough SSRN suggests to create an account, you can download the papersanonymously—it is always a smaller button at the bottom of the page.WATCH: Scott Driscoll, How bitcoin works under the hood (22 minute video; July 14,2013). Available, including transcript, tcoin-works-under-hood.htmlWeek 35. Feb 11: HH: Bitcoin Mechanics, Part 1 Satoshi Nakamoto, 2008, Bitcoin: A Peer-to-Peer Electronic Cash System,unpublished, available at Pierre Rochard, Bitcoin Governance: Why we care. Medium, July 8, 2018. Availableat rochard/bitcoin-governance-37e86299470fAaron van Wirdrum, A Primer on Bitcoin Governance, or Why Developers Aren’t inCharge of the Protocol. Bitcoin Magazine, September 7, 2016. Available rge-of-the-protocol-1473270427/Max Gulker, Bitcoin: Decentralized Governance Put to the Test. Bitcoin andBlockchain Research Briefs, American Institute for Economic Research. Available zed-governance-put-testHanna Halaburda, Digital Currencies: Beyond Bitcoin. Published in Communicationsand Strategies 2016, Available on act id 2865004 6. Feb 13: HH: Bitcoin Mechanics, Part 2Week 47. Feb 18: HH: Bitcoin Transactions and Smart Contracts Christopher Burniske, Bitcoin and Ethereum: How smart contracts work. ARKResearch blog, May 29, 2016. Available at k Hanna Halaburda and Miklos Sarvary, Crypto-currencies (Chapter 4 of book"Beyond Bitcoin" Palgrave 2016). Available on act id 31350438. Feb 20: HH: Ethereum and Enterprise Applications of Blockchain Ethereum, a Virtual Currency, Enables Transactions That Rival Bitcoin’s. New YorkTimes, March 27, tions-that-rival-bitcoins.html Gideon Greenspan, Ending the bitcoin vs. blockchain debate. Blog post July 20,6

2015. Available -blockchain-debate-gideongreenspanBlockchain Goes To Work At Walmart, Amazon, JPMorgan, Cargill and 46 OtherEnterprise, Forbes, April almart is betting on blockchain to improve food safety, TechCrunch,September 2018 ng-on-theblockchain-to-improve-food-safety/Gian Volpicelli, Is Libra really a cryptocurrency? Wired, Aug 14, -cryptocurrency-explainedFacebook wants to create a global currency, The Economist, Jun 22, acebook-wants-to-create-aglobal-currencyWeek 59. Feb 25: HH: Ripple vs. R3 Case Discussion Chapter 3: Financial Use Cases, in Matteo Biela and Vittorio Zinetti, BlockchainTechnology and Applications from a Financial Perspective. February 26, 2016.Available from NYU Classes. Read 3.1: Payments; rest of chapter is optional reading. Sally Percy, What is the Cheapest Way to Send Money Abroad? The Telegraph, 7April the-cheapest-way-to-sendmoney-abroad/ Read the Wikipedia articles on Ripple (the company, the payment protocol, andthe coin—XRP) and do additional research as needed. Read the R3 Corda platform website ( Hanna Halaburda, Blockchain Revolution without the Blockchain. Communicationsof ACM, July 2018. Available on act id 3133313 Blockchain taxonomy from CB hain-trends-2019/ Prepare and Submit Ripple/R3 Case Questions: individual work, maximum 1-2 pagesbullet point answers10. Feb 27: HH: Machine Learning, Part 1Cameo: preview of Fintech startups Machine Learning for Humans (Part 1, Part 2.1, Part 2.2 pages 30-31, Part 2.3 pages46-52), available ine%20Learning%20for%20Humans.pdf OPTIONAL: Dhar, V., Data Science and Prediction, Communications of the ACM,volume 56, number 12, December 20137

OPTIONAL: Dhar V., When to Trust Robots With Decisions and When Not To, HarvardBusiness Review, May with-decisions-and-when-not-toOPTIONAL: Provost, F., Predictive Modeling With Big Data: Is Bigger Really Better? BigData, volume 1, issue 4, Jan 089/big.2013.0037Week 6:11. Mar 3: HH: Machine Learning, Part 2 Red Thread: Kathleen DeRose and Christophe Le Lannou: CFA Reading on MachineLearning in Investment Management OPTIONAL: Provost and Fawcett, Data Science for Business, Chapter 3, Introductionto Predictive Modeling: From Correlation to Supervised Segmentation OPTIONAL: Provost and Fawcett, Data Science for Business, Chapter 5, Overfittingand its Avoidance12. Mar 5: HH: Technology, Network Effects and Platform Strategy James Currier, The Network Effects Manual: 13 Different Network Effects (andcounting). Medium, January 9, 2018. Available at 017d Strategies for Two-Sided Markets. Thomas Eisenmann, Geoffrey Parker, and MarshallW. Van Alstyne. Harvard Business Review, October 2006. Available from NYUClasses. Hanna Halaburda and Felix Oberholzer-Gee, Limits to Scale, published in HBR April2014, available at 7:13. Mar 10: HH: Paypal Case & Data Privacy PayPal Merchant Services. HBS Case 9-806-188. Available from NYU Classes Big data, financial services and privacy. The Economist, February 9, 2017. Availableat facebook-friends-big-data-financial How to think about data in 2019. The Economist, December 22, 2018. Available -to-think-about-data-in-2019 Cybersecurity and Data Privacy in 2017: Eight Topics to Follow. By McGuireWoodsLLP, January 31, 2017. Available nd-data-privacy-in-2017-32602/ EU-U.S. Privacy Shield Fact Sheet. European Commission, July 2016. Available s/factsheets/factsheet euus privacy shield en.pdf WATCH: 507wn9VcSAE RECOMMENDED: watch the movie “Brexit: The Uncivil War” Prepare and Submit PayPal Case Questions: individual work, maximum 1-2 pagesbullet point answers14. Mar. 12: HH: Midterm Review (in class)8

SPRING BREAK IS MARCH 16-20. PLEASE NOTE THAT THE MIDTERM REVIEW IS BEFORE THE BREAKAND THE MIDTERM EXAM IS AFTER THE BREAK.Week 815. Mar. 24 : HH: Midterm Exam (in class)16. Mar 26: KTD: Disruptive Innovation & VC in Fintech Christensen, Clayton M., and Bower, Joseph L. (1995). Disruptive Technologies:Catching the Wave. Technology & Operations. Harvard Business School. Christensen, Clayton M., Raynor, Michael E. and McDonald, Rory. (2015). What isDisruptive Innovation? Harvard Business Review. December 2015. Frame, W. Scott, and White, Lawrence J. (2014). Technological Change, FinancialInnovation, and Diffusion in Banking. Chapter prepared for The Oxford Handbook ofBanking, 2nd edition. Available at www.ssrn-id2380060.pdf Tufano & Lerner pros and cons of financial innovation: Venture Capital for Dummies le-Gravagna/dp/1118642236 (this book places more emphasis on entrepreneurspreparing to raise capital) Kerr, William R., Lerner, Josh, and Schoar, Antoinette. 2014. The Consequences ofEntrepreneurial Finance: Evidence from Angel Financings. Review of FinancialStudies 27, no.1. January: 20-55. Available at: Sequoia Pitch Deck. Available ia-capital-pitchdecktemplate OPTIONAL:Metrick, Andrew. (2007). Venture Capital and the Finance of Innovation. John Wiley& Sons. Chapters 1-4. There are multiple editions of this book. (This book places moreemphasis on venture capital finance and later chapters go into depth aboutoptions valuation. It’s expensive but it is also a great reference). Also, Metrick’swebsite provides great k/index.html17. Mar. 31: HH & KTD: Midterm Exam return and review, Mapping Fintech DisruptionThe first half of the class we review the midterm. The second half of the class we reviewcase method. We will do an in-class group exercise; groups will be posted in advance Haycock, James, and Richmond, Shane. (2015). Bye Bye Banks? How retail banksare being displaced, diminished, and disintermediated by tech startups-and whatthey can do to survive. London, U.K. Wunderkammer, Adaptive Lab Allayannis & Cartwright. 2017. Darden Case Study: Cutting Through the Fog: Findinga Future with Fintech.18. Apr. 2 Payments and Money Transfers: Pirate Booty/Loot Pirate Booty Case (on NYU classes)9

LTV: CAC: OPTIONAL:Payments Systems in the U.S.: rofessional/dp/0982789742Prepare and Submit Case Questions: individual work, maximum 1-2 pages totalbullet point answerso Would you invest in Pirate Booty? Why or why not?o Pirate Booty “outsourced” much of their tech stack. Why?o Pirate Booty chose not to obtain a banking license. Why?o In your view, what is the most overly optimistic assumption in Pirate Booty’s 5year financial forecast. The most conservative one? Why?Week 1019. Apr. 7: KTD: Markets and Price Discovery: Trumid Trumid Case (on NYU classes) Red Thread: Financial Times. Dec. 23, 2019. Machine Learning: the big risks and howto manage them. f0c92e957a96 Flextrade Blog. 2018. Electronic Bond Trading at the Crossroads: ading-crossroads/ Bloomberg. 2018. Electronic Bond Trading Gains Ground ally-matures Prepare and Submit Case Questions: individual work, maximum 1-2 pages bulletpoint answers (this case is ungraded)o Who are Trumid’s main competitors, and what is the source of Trumid’scompetitive advantage versus these competitors?o Will Trumid make corporate bond markets trading more efficient? Pleaseindicate how you would determine this.o How did Trumid induce dealers to join the platform?o What is Trumid’s SOM?20. Apr. 9: KTD: Wealthtech: Betterment Betterment Case (on NYU classes)Investment Company Institute. 2018. Factbook: Industry Research. This is theinvestment management industry-lobbying group. However, they have goodmaterial on the long-term industry trends. To familiarize yourself with these look at thesections under research. factbook.pdf Red Thread: Lauren Cohen. 2019. Lazy tract id 1658471 Red Thread: JPMorgan: Big Data and AI Strategies: Machine Learning andAlternative Data Approaches to Investing DIY stock indices pose challenge to investment heavyweights. Financial Times.December 5, 2019.10

-11f260415385Wigglesworth, Robin. 2020. Active Fund Managers pray for turnaround as exoduscontinues: -584213ee7b2bBessembinder et al articles on whether stocks outperform Treasury Bills, and thecontribution of a few stocks to global index returns referred to in ers.cfm?abstract id tract id 3415739Michael Kitces on the tension between advisor software and incumbent , Melanie. 2015. Robo-Advisors: A Closer Look. (Paper against robo-adviceprepared for incumbent Federated ?abstract id 2658701Tertilt & Scholz. 2017. To Advise, or Not to Advise-How Robo-Advisors Evaluate theRisk Preferences of Private Investors. Abstract available at SSRN, entire articlerequires subscription. id 2913178 OPTIONAL: Sironi, Paolo. 2016. FinTech Innovation: From Robo-Advisors to Goal BasedInvesting and Gamification. United Kingdom. Wiley & Sons. Prepare and Submit Case Questions: individual work, maximum 1-2 pages bulletpoint answerso Should Betterment enter the retirement market? Why or why not?o Did Betterment’s tech stack hinder or help its growth?o Is Betterment a platform?o How does Betterment customize its customer service to reflect behavioralbiases in investing?Week 1121. Apr. 14 KTD: FinTech Valuation: Tech or Fin and Lending Club Damodaran, Aswath. The Dark Side of Valuation Damodaran, Aswath. The Dark Sideof Valuation. ry/darkside.pdf Corkery, Michael. 2016. As Lending Club Stumbles, Its Entire Industry FacesSkepticism. The New York Times. Deal Book. May 9. Available book/as- pticism.html Largest M&A deals in /en/news-insights/latest-newsheadlines/50076393 Wilcox, Jarrod, and Phillips, Thomas. 2004. The PB/ROE Model Revisited. Slide Deckvia Northfield Information Services available at: Balyuk & Davydenko. 2018. Reintermediation in Fintech: Evidence from cfm?abstract id 318923611

22. Apr. 16: KTD: Fintech Valuation: Unicorns, (con’t). SHORT: Stanford Business Journal article about Gornall and Strebalaev, available alleys-unicorns-are-overvalued Softbank vision fund. The Financial 9-a8e9-296ca66511c9 LONG: Gornall, Will and Strebalaev, Ilya. 2017. Squaring Venture Capital Valuationswith Reality. Available t id 2955455Week 1223. Apr. 21: KTD (Guest Speaker): Fintech Regulations Robinhood concerns: avingsregulatory-concerns/ UN piece on why sandboxes don't work for inclusion Lessons on Regulatory Innovations to Enable Inclusive FinTech.pdf Leising, Matthew. 2017. The Ether Thief. Bloomberg Markets. Available er-thief/ Mesropyan, Elsa. 2016 “International FinTech Regulatory Sandboxes Launched byForward-Thinking Financial Authorities,” Let’s Talk Payments, available ch-regulatory-sandboxes- launchedby-forward-thinking-financial-authorities/ /dealbook/silicon-valley-tried-to- upendbanks-now-it-works-with-them.htmlMilanovic, Nik. 2017. An Obscure Regulatory Debate Has Put The Entire U.S. FintechCommunity On Edge. Available unity-on-edge/Popper, Nathaniel. 2017. “Silicon Valley Tried to Upend Banks. Now it Works withThem,” The New York Times, February 22, available ks-with-them.html The FCA’s Global Fintech dbox/global-sandboxHere’s What China’s Regulatory Reshuffle Could Mean for Fintech. Business Insider.2018. ng, Wei and Dollar, David. 2018. What’s Happening with China’s FintechIndustry? ry/McNulty, Lucy. 2017. 10 RegTech Firms to Watch. Financial ech-firms-to-watch-2017053024. Apr. 23: KTD: Financial Exclusion and Inclusion: Digital India12

World Bank, 2014, Global Financial Development Report: Financial Inclusion. Availableat: ORT/Resources/88160 961361888425203/9062080-1364927957721/GFDR- 2014 Complete Report.pdf. Bose, Abhijit. 2017. India’s Fintech Revolution is Primed to Put Banks Out of Business.Available at: evolution-is-primed-toput-banks-out-of-business/ Sachdeva, Rishabh. 2017. India’s Demonetization Experiment. Medium. Available on-experiment-cc5e15dd1d1d Digital India: Chakravorti, Bhaskar. 2017. Early Lessons from India’s Demonetization Experiment. ias-demonetization-experiment Blood and Soil in Narendra Modi’s India. 2019. The New 09/blood-and-soil-in-narendra-modisindiaWeek 1325. Apr. 28: KTD Behavioral Fintech Red Thread: Cassidy, Daniel. 2006. Vanguard Group. Lessons from BehavioralFinance and the Autopilot 401-K Plan. (PDF in NYU Classes). Commonwealth’s work on “prize-linked” savings: vings Lee, Sung K. 2019. Fintech Nudges: Overspending Messages and Personal FinanceManagement (PDF in NYU Classes) Thaler, Richard H. 2015. Misbehaving, The Making of Behavioral Economics. NewYork/London. W.W. Norton.26. Apr.30 KTD Visualization in Fintech Special Guest: Prof. Kirsten SosulskiYou will prepare a fintech visualization, designing one simple UX or UI screen, shared viagoogledocs, instructions will be posted on Classes Red Thread: Applying AI in Wealth Management: Compelling Use Cases Across theClient Life Cycle. Ernst and Young and Finantix. PDF. Video: Kathleen DeRose on visualization in fintech Top Data Visualization tools How VR and AR will shape the future of fintech, Oct. 31, 2018 The Practical Guide to Designing Great Fintech Apps: July 2018 See CB Insights for “worst” visualization

Kathleen DeRose ([email protected]) Hanna Halaburda ([email protected]) Teaching Fellow: Yuhao Ding, [email protected] Summer Yang: [email protected] Note: If you need to email the Professors or the TF please use the above emails and include "UG Fintech" on the subject line of your email. Pre-requisite: Foundations of Finance