Fintech, Digital Finance
& DeFi

The case opens with a deliberately provocative observation: FinTech is easier to describe by what it is not than by what it is. Several competing definitions from the case:

Figure 8 from the case maps bank business lines by likelihood and extent of disruption. Three key bank vulnerabilities identified:

The counter-evidence Costa finds is damning: digital channels already dominate interactions (internet banking 10+ times/month vs branch 1-2x). Citi's own internal data shows workforce decline of 20%+ expected over 10 years. A "wait and see" posture risks being caught unprepared when threat becomes imminent.

The boldest option: transform the entire bank into a technology-first institution. Banks do spend heavily on IT — global bank IT expenses were projected to reach $210B+ by 2017 (North America $70B, Europe $78B, Asia-Pacific $78B). Swedbank's chairman declared "we are an IT company" over a decade before this case.

The Citi-Lending Club partnership is the case's flagship example of this model in action. The division of labour is explicit: Lending Club is better at sourcing and algorithmically evaluating loans; Citi has the deposits to fund them. Each does what it does best. The partnership captures the benefits of FinTech without the integration risks of acquisition.

Before Bitcoin, digital cash was impossible to create without a trusted intermediary. The core problem: a digital file can be copied infinitely. If I send you a digital "coin," what stops me from also sending the same coin to someone else? Every previous attempt required a central mint to prevent this.

Stablecoins solve DeFi's fundamental usability problem: crypto is too volatile to be useful as a unit of account or medium of exchange. Three types exist:

Compound is a decentralised money market. No loan officers, no credit scores, no identity requirements. Anyone with crypto can lend or borrow algorithmically.

Banks engaging with crypto — whether through custody, lending, or market-making — face five structurally distinct risk categories. Each maps to a different part of the balance sheet and regulatory framework:

International wire transfers today rely on the SWIFT correspondent banking network — a chain of bilateral relationships that adds cost, delay, and opacity at every hop. Blockchain collapses this stack:

Regulators are not trying to kill crypto — they are trying to manage its externalities. The slide deck identifies five core risk categories that drive the regulatory agenda globally:

CBDCs are the state's response to private digital money — a digital form of central bank liability that is programmable, traceable, and directly issued to citizens or institutions. They co-opt blockchain's benefits while preserving monetary sovereignty:

The course material frames crypto's evolution as three distinct phases — each building on the last, each opening new use-cases and business models:

Ethereum (launched 2015) solved the limitation of Bitcoin's intentionally constrained scripting language by introducing a Turing-complete virtual machine — the EVM (Ethereum Virtual Machine). This allowed arbitrary programmes to run on a decentralised, tamper-proof computer:

Total Value Locked (TVL) is DeFi's headline metric — the sum of all assets deposited into smart contracts across all protocols. It serves as a proxy for the ecosystem's economic footprint:

Traditional credit scoring (FICO in US, Buró de Crédito in Mexico) works by tracking repayment history on previous credit products. In Mexico, this creates a Catch-22: you need credit history to get credit, but you need credit to build history. The case documents Mexico's structural credit gap:

Kueski built a proprietary algorithm using hundreds of non-traditional data points to answer three questions: (1) Is this person who they say they are? (identity fraud) (2) Do they intend to repay? (willingness) (3) Can they repay? (capacity)

Flores identified the pain point while trying to replicate Netflix's subscription model in Mexico: he realised the problem wasn't lack of demand for digital content, but lack of credit to pay for it. 61% of Mexicans had no bank account; 82% had no credit or debit card; $4B in annual e-commerce was lost because consumers couldn't transact online. The credit gap was the root constraint.

Critically, Flores did not build immediately. He spent six months testing four distinct credit concepts via landing pages — a lean startup approach to validating demand before committing engineering resources. Each concept tested a different customer segment and product form. Only after seeing which landing page drove the strongest conversion signal did he commit to online consumer credit. This is the case's most important strategic lesson: systematic hypothesis testing before scaling capital and talent.

Session 4 situates Big Data within the wider technology disruption landscape. Four converging forces are enabling FinTech to challenge traditional financial services:

The course material traces AI's historical arc (1950s → 1980s → present) to explain why the current wave succeeds where prior ones failed. Three converging factors made the difference:

PayPal is a textbook two-sided market (Rochet & Tirole). To create value, it must simultaneously attract two distinct user groups whose presence makes the platform more valuable to the other side.

PayPal's early success was driven by four converging factors — notably, none of them were planned:

The course material frames FinTech's disruption of payments as a fundamental business model shift — from banks organising themselves around products to organising around customer needs:

Despite the FinTech narrative, the slides ground the discussion in data: cash remains the most-used payment method globally — but the structural trend is clear and accelerating:

China leapfrogged cards entirely — going from cash to mobile payments without the decades-long credit card infrastructure build that Western markets had. The result: two super-apps dominating a near-cashless society:

Nubank launched its credit card in September 2014 — deliberately purple because market research showed it was the colour least associated with a credit card. This single design decision made the card a social object, not just a financial product.

The Brazilian banking market in 2013 was a textbook oligopoly: five banks controlled 79.5% of assets and 82.8% of deposits — with the market power to extract extraordinary rents from customers who had no meaningful alternative. David Vélez experienced this personally when opening his own account: trapped behind bulletproof glass, treated as a suspect, offered a credit card at 450% APR. His personal experience was the market's experience at scale.

The course material frames the session around six structural trends that the COVID-19 pandemic accelerated beyond their pre-2020 trajectories — together creating the "contactless society" that is the platform for Digital Banking growth:

The course material provides more detail on Nubank's credit product mechanics than the HBS case. Three innovations made the credit card defensible, not just desirable:

This is the case's most analytically demanding question — it is fundamentally a question about the nature of Lending Club's business model, not just a valuation argument. The answer determines which comparables are appropriate, which risks investors must price, and what the long-run equilibrium looks like.

The slides contain the course material's case discussion questions and key takeaways — critical for exam preparation:

One of the session's most important structural insights: the P2P label is now a misnomer. The course material identifies four consequences of the shift from retail to institutional funding:

The course material presents alternative finance as a broad ecosystem — far beyond P2P lending. The slide provides a definitive landscape map:

Every successful FinTech in this course started with a genuine, observable pain point — not a feature idea. The pattern is consistent:

Every FinTech requires a rare combination of competencies that almost never exist in one person. The successful FinTechs in this course all show deliberate team architecture:

FinTech GTM strategies differ fundamentally from traditional bank marketing (TV + branch + mass mail). The successful cases all use digital-first, low-CAC approaches:

Agent banking (using non-bank agents as distribution points) is the key enabler of financial inclusion — but creates its own risks:

Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance are required of ALL financial services providers — but disproportionately burden small FinTechs.

The case is candid about the organisational barriers that make bank-FinTech partnerships harder than they look on paper: