Interview with Raša Karapandža

FinTech

Raša Karapandža (born January 4, 1978) is a professor of finance at EBS Universität in Wiesbaden. He serves as an academic director of Master in Finance program and head of chair of finance. He received a PhD degree in economics and finance from Barcelona Graduate School of Economics, University Pompeu Fabra, Barcelona. He has been a visiting research scholar at NYU and at UC Berkeley, and also serves as a visiting professor at New York University Abu Dhabi. The general focus of Karapandža’s research and teaching activities is investments, empirical asset pricing, and portfolio management. In his recent papers, he studies return predictability of equities, new methods to test return predictability, the role of information on return predictability, and the use of big data to generate robustly predictable portfolio alphas.

1. Can you give us a definition of FinTech, tell us when this term was first established, and describe how the field is evolving?

Fintech is an abbreviation of the phrase “financial technology.” As it is currently used, FinTech represents the application of technology in order to improve financial services. It is believed that the word FinTech was used for the first time in the 1980’s by Peter Knight, the editor of a business newsletter in the Sunday Times, but in a very different context. He used it to describe a bot that altered his mailbox.

The widespread use of the term had to wait until after the financial crisis of 2008. It was only after that financial crisis that angel investors, venture capitalists, and private equity funds started massively investing in FinTech companies, which, in turn, started changing the world of financial services on a large scale.

2. You are a professor of finance at EBS Oestrich-Winkel in Germany, and you also teach at the New York University. What are the biggest differences between teaching finance in Germany and the United States, and is the importance of FinTech steadily increasing for education in both countries?

I do teach a FinTech course at EBS in Germany, and I also teach a FinTech course at NYU. However, I actually teach it at the NYU campus in Abu Dhabi. In my typical FinTech class in Germany, I would have students from all continents. Similarly, in the classroom at NYU, on any of their campuses – regardless of whether it is the NYU campus in New York, Shanghai, or Abu Dhabi – the student population is incredibly diverse. This tells an important story – education is global and it makes no sense framing it into a national perspective. This is especially true when it comes to FinTech courses. In my FinTech course we start with Euclid’s theorems and move to Euler’s theorems to be able to understand the cryptographic theory necessary for understanding how Blockchain works, for example. Similarly, the Machine Learning techniques that we cover are not nationally specific. National aspects do play a role – but only to understand the cultural differences that lead to the different directions in which FinTech has developed across the planet.

3. You serve on the board of directors of RS2, a company offering secure payment services, payment software, and managed services. They are responsible for over 62 million transactions per hour. How do companies like this one ensure that their data is secure and what are the biggest risks they face?

Cyber Security is one of the most important challenges in the contemporary world. There is no universal recipe for keeping cyber villains away. Investment into people and their education is the only thing that keeps the modern world safe from cyber villains. A cyber villain wakes up each morning thinking, “All I’ve got to do today is run faster than the weakest cyber security team.” A cyber security team wakes up thinking, “All I’ve got to do today is run faster than the fastest cyber villain.” Unfortunately, it is a difficult and never-ending race. And the importance of that race grows every day as more and more of our world becomes digitalized.

4. What are the key elements for companies and especially Start-Ups to be successful in the FinTech sector?

I believe that FinTech startups are not that special in this respect, so general Start-Up rules of success apply. In my view, besides having the right team that is able to execute, probably the most important factor is that one is doing the right thing at the right time. Fifty years ago, one could add location (or the place of business) into this equation. But internet and cloud services have almost removed location from this equation.

5. How do you see the future of FinTech and do you think that we will still be using cash in 50 years?

We live in times where the speed of change has accelerated. To give you an example –  when Facebook asks me about my relationship, I think of my wife and add her in that category. If you ask the same question to young people entering university, for them, the Facebook relationship may refer to a different category. They will have real life relationships and Facebook relationships, and these are two distinct categories. My (never tested) theory is that this comes from the fact that they started having Facebook relationships before they started having real life relationships. Societal categories like marriage, or monogamous relationships, are longstanding fixtures in communities around the world. And here, we have a completely novel societal category – Facebook relationship – created on a time scale of a decade. Thus, given this increased speed of change, I believe that cash will go extinct in much less than 50 years. And, at least to some extent, I have to say unfortunately. And I say that since cash is an important privacy tool that protects citizens from non-benevolent state actors.