Financial services firms play a critically important role in the global economy. They finance investment, facilitate payments, and help firms and households save and manage risk. These financial services are provided in an array of organizations and structures – from fintech startups to private credit funds to multi-trillion-dollar global banks and a lot more – in an industry that is always under the threat of disruption. There is no industry that has seen as much disruption – both good (innovation) and bad (crisis) – as financial services.

In Managing and Innovating in Financial Services, we examine the challenges and opportunities faced in financial services as incumbent firms and startups try to navigate and shape an environment in which competition, technology and regulation are constantly changing.

We will look at a variety of financial institutions and financial service providers including banks, nonbank financial intermediaries, and fintechs. We will examine decisions through the lens of these firms with government policy and regulation as an important factor that often shapes their decisions.

The course is divided into three modules. In the first module, we’ll study the business of banking. Banks are worth studying both because they are important credit providers and because of their unique role in the payment system: they are the only entities that can hold accounts at the Federal Reserve and are thus critical in money movement across the financial system. And you can’t really understand innovation and tech disruption without understanding the basics of banking. There are three reasons why. First, many of the problems innovators are trying to solve are focused on gaps in banking services. Yet, many of the challenges they face stem from the fact that they are not banks. Second, there are many opportunities to help banks get better. Third, many innovators depend on banks as their partners – either to provide credit to them or to facilitate their financial transactions, both lending and payments.

In this first module, we will seek to understand the drivers of value in banking. This will involve getting up to speed on understanding bank financial statements and valuation, which are likely unfamiliar to you even if you’ve worked in finance. We will develop a set of tools that will be valuable in evaluating banks, nonbank financial intermediaries, and fintechs. We will also examine when things go terribly wrong in banking by examining the Silicon Valley Bank crisis, the Global Financial Crisis, and the ongoing regulatory response to both.

In the second module, we study credit, focusing on the main types of credit: residential mortgages, small business loans, consumer credit, lending to larger firms, and commercial real estate loans. Our main focus will be on firms that are innovating in the way they provide these loans. Some of these firms are fintechs, but others are banks and yet others are nonbank financial intermediaries like business development companies and private credit funds. We will develop a framework for understanding how a credit intermediary creates value.

In the third module, we will look at the payments system and the innovations taking place in that sector. Much fintech activity in this area builds off the traditional payment rails. We will start with a review of interchange, discuss firms that are trying to bundle payments with credit and other services, and then examine international payments. The module ends with panel discussions of innovations in real time payments and stablecoins. We will also have a panel on application of GenAI in financial services, including in payments.

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