Managing and Innovating in Financial Services
Course Number 1509
Professor David Scharfstein
Spring; Q3Q4; 3 credits
In Managing and Innovating in Financial Services (formerly Managing the Financial Firm), we examine the challenges and opportunities faced in financial services as incumbent firms and startups try to navigate and shape an environment with rapid changes in competition, technology and regulation.
ContextFinancial services firms play a central role in the global economy. They provide capital for growth, payments infrastructure for transactions, and the tools to manage risk. These financial services are provided in an array of organizational forms from FinTech startup to multi-trillion dollar global bank - in an industry undergoing unprecedented change and disruption stemming from the financial crisis and advances in technology.
ContentWe will focus on three essential financial services - credit, insurance, and payments - and the firms that provide these services. These firms include banks, private equity firms, hedge funds, finance companies, fintech startups, and insurance companies. It also includes the largest and arguably most important bank - the Federal Reserve.
The course is divided into three basic modules
Module 1: Credit. There are many types of credit and many different types of organizations that provide credit. In Part A of this module we study banks, the main providers of credit in the economy. We study how they manage credit, how they fund themselves, how they manage risk and how they are valued. In Part B, we study what happens when there is a breakdown in credit by examining the financial crisis of 2007 - 2009, which set the stage for the regulatory environment in which financial services firms now compete. Finally, in Part C, we study the intermediation of credit by a host of non-bank financial firms including fintech companies, specialty finance companies, and private equity firms.
Module 2: Insurance. The insurance industry provides important risk management tools to households and firms, and it comprises almost one third of the financial sector. While dominated by large and often opaque insurance companies, both private-equity and venture-capital backed firms have been active players in the industry. We will study the role of insurance in the financial system and the opportunities for innovation in this industry.
Module 3: Payments. The business of payments is extraordinarily profitable for many firms in the payments ecosystem. Yet of all financial services, the payments space is undergoing the most innovation and is most susceptible to disruption. Innovations include real-time banking payments and the many types of payments made possible by blockchain technology. We will study the current payment ecosystem and the potential for disruption to this ecosystem.
The classes will mainly be discussion of cases, but some classes will be devoted to discussion of academic articles and white papers on important issues in the financial system. Case protagonists and leading industry executives will often visit class to provide their perspectives.