Financial innovation

Finance

1. F I N A N CIAL I N N O V ATION S u b m itted to : D r . P i n k i S u b m itted by : R i t u Sharma ( 1 7 1 4 4 7 2 1 , M c o m . h o n s ( 6 t h s e m . )

2. D E F INITION F i n a n cial i n n o v ation c a n b e d e f i n ed a s a n a c t o f c r e a t ing a n d t h e n p o p u l a r i z i n g n e w f i n a n cial i n s t r u ments , t e c h nology , institutions , m a r k et s , p r o c e s s a n d b u s i ness m o d e l i n c l uding n e w a p p l ication o f e x i sting idea's i n d i f f erent m a r k et c o n t e x t .

3. B e n efits o f f i nancial i n n o vation R e d u c t ion i n transaction c o s t . M o v i n g f u n d s a c c o r s s t i m e a n d s p a c e - c o m p l e t e markets M a n a g i ng r i s k s a n d t h e p o o l i n g o f f u n d s . B o o s t i n g e c o nomic g rowth a n d development . Facilitating t h e s a l e a n d p urchase of g o o d s a n d s e rvices t h r o ugh a p a y m ent s y s tem . A d d r e s sing m o r a l h a z a r d a n d a s y m metric i n f o rmation p r o b lem .

4. C a u s es f o r F i n a n cial i n n o v ation L o w p r o f i t a b i lity K e e n c o m p e tition Economic l i b e r a l i sation I m p r o v ed c o m m u n ication t e c hnology C u s tomer service G l o b a l i m p act I n v e s tors a w a r e ness

5. T y p e s o f F i n a ncial innovation F i n a n cial s y stem / i n s t i t u t i o n a l i n n o v a t i o n P r o cess innovation P r o d u ct i n n o vation

6. M o t i v e s o f f i n a ncial innovation T o p r o vide w a y s o f / f o r : 1 . C l e a r i n g a n d s e t t l i n g payments t o f a c i litate trade . 2 . T h e pooling o f re s o u rces a n d f o r s u b d i v i d i n g o f s h a r e s i n v a r i ous e n t e r p r ises . 3 . Transfer economic r e s ources t h r o ugh t i m e , a c r o ss b o r d e r s a n d a m o n g i n d u s t r i es . 4 . Managing r i s k i n s urance .

7. A r g u ments a g a inst f i n a ncial innovation S o m e e c o n o m i s t a r g u e t h a t f i n a ncial innovation h a s Little t o n o productivity b e n e fits . P A U L V O L C K ER s t a t e s t h a t t h e r e i s l i t t l e c o r r e l a tion b e t ween s o p h i stica tion o f a b a n k i ng s y stem a n d p r o d u c t i v i ty g r o wth . T h e r e i s n o n e t u ral e v i dence t h a t f i n a ncial innovation h a s l e d t o e c o nomic growth . I t h a s l a r g e l y b e e n a m a t t e r o f r e n t s e e k i n g , r a t h e r t h a n true productivity .

8. R o l e o f t e c hnology i n f i n a ncial innovation S o m e t y p es o f f i n a n cial innovation a r e driven by i m p r o v e m ent i n c o m p uter a n d t e l e c o m m unications t e c hnology . F o r m o s t p eople , t h e c r e a tion o f A T M w a s a g r e a t e r financial innovation t h a n a s s e t s b a c k e d s e c u r i t i zation . O t h e r s l i k e d e b i t a n d credit cards a n d o n l ine p a y ment system . T h e s e t y p e s o f i n n o vation a r e n o t a b le b e c ause t h e y r e d u ce t r a n s a ction c o s t .

9. E x a m ples o f r e c e n t f i n a ncial innovation M o b i l e p a y m ent system P e e r t o p e e r l a n d ing O n l ine e q u i ty f u n d i n g F o r w o r r y f r e e a n d h a s s l e f r e e b a n k i ng F o r p a y i n g b i l l s i n a c i n c h E commerce