CFA Affiliation and Chal..
Machine learning, quantitative techniques and big data are nowadays terms very much associated with the finance world. Finance is moving fast towards a very quantitative approach. Services such as IoT (Internet of Things), blockchain and cloud computing are entering the financial world providing customers with more products and opportunities while offering lower fees compared to the usual financial services.
In this context, last April 3rd BSM-Pompeu Fabra University hosted the masterclass “Disruptive Innovation in Finance: Rise of the Machines” given by Professor José Suárez-Lledó. The masterclass was aimed at future and current students of the MSc in Finance and Banking.
Professor Suárez-Lledó is an adjunct professor for BSM and a Quantitative Investor and Risk Management Consultant in projects related to Wealth Management (Investment Strategy + Portfolio Management) and Market Risk. He is involved in the development of Machine Learning tools and Factor Models applied to Financial Markets, Portfolio Management and Robo-advisors. Throughout his lecture, Professor Suárez-Lledó touched upon some very sensitive topics in the financial sphere emphasizing that Finance has been very much affected by the most recent technological developments.
Financial Technology is disrupting the market
Numbers and funding related to FinTech start-ups is significant and keeps growing over time. On a global scale, there was an increase in Fin-Tech Start-Ups funding from $27,4bn to $55,3bn. Giant players in the financial market are reacting to it in different ways. Some built digital companies within the company as Scotiabank did by establishing Scotiabank’s digital factory. Goldman Sachs purchased HonestDollar, a FinTech startup, and others preferred to invest in external FinTech companies. Big quant investors such as AQR and Renaissance Technologies are heavily spending in the development of machine learning.
Since the emergence of FinTechs, consumers have more options which are either less expensive, faster, or more efficient than traditional banking. Areas such as deposits and payments, lending and financial planning and investments are already being disrupted through services such as mobile-only banks, digital wallets and peer to peer payments.
Traditional banks are still the major players
Every change takes time to fully take place, therefore, it is important to keep an eye open to the future, but do not forget that traditional finance is still out there, and it is still the major employer. It is true that there will be an increasing demand for quants, but this does not mean that companies will not hire people working on fundamental analysis. Therefore, there is no need to rush focusing solely on acquiring new skills to face these changes. They are very important, but the old way of doing finance is still valuable and necessary.
Even if FinTech companies are on the rise, big banks still play the protagonist role in the financial world. They are strong and powerful, consequently, they have a significant lobbying power: Governmental regulations are too complex and are not keeping pace to match the industry changes, slowing down entries. FinTech products don’t have the brand recognition, popularity and customer trust that current bank products enjoy, requiring experienced development teams.
How is the MSc in Finance and Banking preparing our students for these changes?
Nowadays we are seeing an exponential number of academic programs focusing only on quantitative skills which are definitely very important, but they forget the importance of the business base behind finance. The main strength in our MSc in Finance and Banking program is its balance between quantitative skills and business approach. In fact, we are preparing students for the new technological challenges offering courses in Robo-advisors, Machine Learning and Smart Beta, cryptocurrencies and crowdfunding. At the same time though, we instruct them with the basics of traditional finance through modules such as Financial Accounting and Analysis, Corporate Valuation and Financial Management. The combination of these knowledge makes the student able to both apply to more traditional financial positions and to more tech-oriented positions. Given the current situation, I think this is the best way to prepare our future financial professionals.