Course Content

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 large insurance companies – 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, insurance companies 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 four modules.

Module 1: Banking. In this module, we will 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 for moving money across the financial system. You can’t 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, while many of the challenges these innovators face stem from the fact that they are not banks. Second, there are many opportunities to help banks get better; much of fintech is about providing services to banks. Third, many innovators depend on banks as their partners – either to provide credit to them or to facilitate their financial transactions, both in lending and in 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, fintechs, and insurance companies. 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.

Module 2: Credit. We will focus on the main types of credit: residential mortgages, small business loans, consumer credit, and lending to middle-market (private credit) and large firms. 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.

Module 3: Payments. We will explore 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 review these traditional payment rails, discuss firms that are trying to bundle payments with credit and other services, and examine international payments. We will also discuss stablecoins, central bank digital currencies, and real-time payments.

Module 4: Insurance. In the final module, we will look at insurance – both property and casualty (P&C) and life insurance, including the role of private equity in insurance. Insurance comprises about one third of the financial sector, and firms in this sector are playing an increasing role in the financial lives of individuals and in the allocation of credit to the corporate sector. Private equity and asset management firms are also getting involved in insurance because they see insurance as a stable source of funding, well-suited to making illiquid investments.

WHO SHOULD TAKE THIS COURSE?

This course is for anyone who wants to pursue a career in finance.

• If you’re interested in becoming an entrepreneur in financial services, there are three related ways this course can be helpful. First, almost half the cases consider entrepreneurs in finance or financial services startups; understanding their journeys will inform you about the opportunities and challenges. Second, the course is designed to help you better understand the financial services landscape and thus help you identify and evaluate entrepreneurial opportunities. Third, you will learn about the types of partner firms you will need to succeed as an entrepreneur in financial services, whether banks, Banking-as-a-Service providers, or payment processors, to name a few.
• If you want to be an investor – in private equity, private credit, or capital markets – you need to understand how the financial system works. This course provides a holistic view of the financial system. I know of no other course at HBS or other business schools that provides a broad overview of the financial system. Moreover, as an investor you will likely be heavily dependent on the availability of credit, which is a principal focus of this course.
• If you want to work at an established financial intermediary -- at a bank, insurance company, or payments company -- this course is highly relevant for obvious reasons. Relatively few HBS students will start out working in these types of firms – particularly the more mature versions of these companies – but many will eventually land in these types of firms or end up consulting for them. I also believe that this is a missed opportunity. It is a large, very highly compensated sector with opportunities to work on important problems and have big impact.

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