Dr Raj Iyer joined Imperial College Business School in 2016 and is module leader for Banking and Fintech: Strategies and Challenges. In this profile, Raj explains what MBA students can expect to learn on the elective, the importance of the module for students considering a finance or technology career, and the challenges and opportunities facing the fintech industry.
Tell us about your research
My research is primarily in banking. I am interested in understanding the roles banks perform in lending and securities trading, and the regulation of banks. My research has moved into fintech, looking at how these technologies are used in lending, securities and credit – and the structure of banks in the future. Specifically, I investigate whether the fintech market can effectively screen borrowers and whether non-sophisticated fintech investors can do as good a job as banks in terms of lending.
What concepts can MBA students expect to learn on the Banking and Fintech: Strategies and Challenges elective?
To understand the strategies and challenges around fintech and banking, you need to understand what banking is. The module starts with students learning about why banks are organised the way they are, understanding concepts like assets and liabilities, and the advantages of banks in terms of the functions they perform, for example screening, monitoring and deposit taking. By understanding these concepts, students can understand how new financial technologies come into play and compete with banks, offering more efficient ways of doing these functions, and how banking will respond to these changes.
Practically, students learn new fintech ideas and to evaluate the space of banking and fintech, for example, the risks that banks face in the new world of fintech. Students also hear from CEOs of new fintech ventures, venture capitalists who fund fintech technology, and bankers. This year speakers have included the CEO of Monzo and Partners from Assembly Capital.
The elective examines new technologies coming to the market and their vision, as well as the difficulties in funding fintech technology and how new technologies could reshape the whole banking arena.
For a student considering a finance career, why is this elective important?
The elective gives students a good sense of banking. It covers the key essentials of why banks are the way they are, what makes banks so special, and why it’s so difficult to displace banks. Banks have been around historically since the beginning of the 1800s. By understanding banking, you can understand how fintech can make a dent, where it will be successful and where banks retain their advantages. Understanding these issues would make you an asset to a fintech player or a bank who is trying to compete in the fintech space.
Who would the elective be useful for?
The elective would be useful to someone who is already in banking and trying to leverage technology in their own bank, a professional who is trying to switch from banking into fintech, or an entrepreneur who has the technology but wants to understand banking and fintech to get there.
Why study banking and fintech at Imperial?
At Imperial, we have a very strong research focus on financial intermediation and, given our strength in technology, it’s a great play. Very few schools have a very strong banking focus within their Department of Finance. Combine that with the very strong technology departments that we have at Imperial, for example the Departments of Computing, and Electrical and Electronic Engineering.
We are ideally placed in the cusp of these two arenas where we understand exactly what banking does, exactly what technology does, and how the interplay between these two can help increase the efficiency overall in these markets. Students also have access to the expertise of the Centre for Finance and Technology, which conducts multi-disciplinary research on finance, business and society.
What are the current issues and opportunities in the banking and fintech sector?
Initially, the fintech sector started with the idea that they were going to displace banks and create a new marketplace. Now, fintech firms and start-ups have come back to a world where they need to co-exist with banks and focus on cutting costs and improving efficiencies in banking. Banks have very rigid structures and it’s very tough to adapt them. The newer models are easier to adapt, cut costs and provide the same service in a more user-friendly way and at a more efficient price.
The fintech sector is also grappling to find new ways of screening so they can lend to the 90% of people whose loan applications are rejected by banks. One idea was whether social media information could be useful but that’s not a scalable market and it’s not growing. It’s not yet clear how the new market would function.
What will the banking and fintech sector look like in the future?
Banks will exist because banks have an advantage in deposit taking: deposit insurance. This means that when you put your money in a bank, your money is insured by the state. People want the safety and there are risks involved in putting your money somewhere else. Because banks can issue safe claims, they will always exist.
The fintech market can offer some services from banks at a much lower price and banks will either redirect some of their customers to these services or integrate fintech services into their existing lethargic and outdated systems. You’ll see a co-existence: a fintech company will process loans at a much faster rate but they will sell the loan off to the bank. There will be new platforms to sell insurance products and to sell portfolio management services.
My sense is that it’s not going to be a new marketplace. The fintech market will be able to bite into banks’ payment systems and wealth management functions, but the bread and butter of banks – the lending and deposit taking – will use the banking model.
This is a space which is evolving as we speak. It started one way, now it’s going in a different way and nobody can predict the future. For example, we don’t know where blockchain is going or what they’re going to be used for. For our MBA students, understanding the basics of banking and how banking markets operate will be a useful toolkit to help them understand where the sector could go.