Fintech Revolution Research Articles

New Blockchain Intermediaries: Do ICO Rating Websites Do Their Job Well?

The fintech revolution, crowdfunding, and blockchain-based funding have dramatically reduced borrowing and lending transaction costs. Many have argued that ultimately this would lead to the complete disintermediation of financing for start-ups and SMEs. However, persistent asymmetric information and moral hazard problems have led to the creation of a new class of intermediaries that play a vital role in these new innovative financing methods. The authors review the new ecosystem built around initial coin offerings (ICOs), and in particular study the role of the ICO aggregators, and listing and rating portals. Using their hand-constructed database of all ICOs from inception in 2013 to September 2017, the authors find robust statistical confirmation that extensive coverage of a particular fundraising campaign in the ICO aggregators’ lists is associated with more successful token sales. However, ratings data seem and appear to vary considerably across different ratings websites and appears to be of mediocre quality. Investors should therefore treat such ratings with caution.

Improving Financial Service Innovation Strategies for Enhancing China’s Banking Industry Competitive Advantage during the Fintech Revolution: A Hybrid MCDM Model

The recent emergence and rapid growth of new financial services by financial technology (Fintech) companies have driven banking institutions towards operational innovation in order to gain sustainable competitive advantage. This study aims to conduct an in-depth investigation of the banking sector in response to the challenges brought by Fintech startups. Based on the service innovation theory, we propose a novel hybrid multiple criteria decision-making method (MCDM) to evaluate service innovation strategies for improving the sustainability of China’s banking industry during the Fintech revolution. A six-dimensional model comprising 20 sub-criteria is constructed and both the decision making trial and evaluation laboratory (DEMATEL) technique and DEMATEL-based analytic network process (DANP) are used to explore interrelationships among the indices and their related weights. Finally, the modified VIšekriterijumsko KOmpromisno Rangiranje (VIKOR) method is employed to evaluate performance gaps in the four major types of commercial banks in China—state-owned, joint-stock, city commercial banks, and other credit cooperatives—in the field of service innovation. The improvement priorities, ranked from highest to lowest, are new business partners, new service concepts, organizational innovation, technological innovation, new customer interactions, and new revenue models. These results will provide strategies for the sustainable development of China’s banking industry and the implementation of changes in response to the impact of the Fintech revolution.

Digital Financial Services (FINTECH) in Latin America

This document assesses the degree of disruptive power of the application of cutting-edge technologies to financial services at a global level (a phenomenon known as Fintech). From there, we analyze the implications that this trend is having on the development of the banking system, with particular focus on the case of Latin America. In this field, platforms are competing vigorously, although large technology companies have clear advantages (most regarding user data) should they decide to enter Fintech full-on. It is worth mentioning the specific business approaches of Google (Artificial Intelligence), Amazon (cloud computing-Big Data), Apple (cellular connectivity), Microsoft (corporate applications and cloud computing) and Facebook (Big Data management in social networks). In parallel, massive transactional systems of P2P payment systems and the so-called digital-wallets (Paypal, Wechat-Tencent and even WhatsApp) are growing as important alternatives within the context of financial markets, representing a source of tension for the traditional banking business. The conclusion is that the traditional banking industry perceives latent competitive threats from this Fintech revolution. That is why it has awakened in recent years with waves of acquisitions-alliances with Fintech startups (improving their human capital in the process), in order to achieve better provision of technological services through the so-called hubs (although they are also using outsourcing models for particular aspects of the business model). This paper also reports the results of a bank-survey on the development of Fintech-Digital Banking in Latin America. Being aware of Fintech's competitive threats, the surveyed banks are reacting through strategies of: i) alliances with Fintech companies (36% of the sample); ii) organic within banks (29% of the sample), where many entities have implemented their own internal digital laboratories or innovation hubs; iii) outsourcing of services to Fintech companies (21% of the sample); and iv) acquisition of Fintech companies (9%). In addition, results suggest that the region shows favorable elements of development in banking supply, although there are persistent lags of adoption of those banking services on the demand side (where most users still prefer traditional banking channels such as physical offices). Regarding prospective challenges for the development of banking in Latin America, the survey established concerns in key areas pertaining to: i) changes in the current regulatory framework; ii) the recurring theme of cybersecurity; and iii) overcoming cultural resistance within the banks themselves. Finally, surveyed banks project that, during the next five years, traditional banking and startups will end up “slicing” the industry in different niches of the market, while 34% think that their reactive strategies will be enough to maintain their banking leadership. This document also presents the details of the countries' individual results (Colombia, Paraguay, Peru, Ecuador, Mexico and Argentina).

Strategic implications of Fintech on South African retail banks

Background: Since the global financial crisis, banks have been exposed to new opportunities and threats unprecedented in history driven fundamentally by technology. So-called ‘Fintech disruptors’ are aggressively tapping into their service delivery chain to offer clients a better (cheaper, more convenient or efficient) value proposition. As banks have subsequently been forced to think more strategically about how to conduct themselves due to the imminent use of, for example, virtual reality, artificial intelligence, biometrics and big data, regulators have simultaneously had to ensure that the pervasiveness of technological disruption does not threaten the soundness of banks and the stability of economies. Aim: To identify the strategic implications of Fintech on South African retail banks. Setting: The study is conducted in the South African retail banking industry. Methods: A post-positivist paradigm approach that is qualitative in nature. Results: There are several main findings: firstly, technology-based skills are becoming mandatory for staff and regulators alike; secondly, interaction policy is migrating clients towards a remote-based distribution strategy; thirdly, the bank of the future will not rely as heavily on brick-and-mortar branches as it has in the past; fourthly, new competitors are entering the fray and offer competitive digital-only solutions; finally, given the innovation and growth shown by these disruptors, financial sector regulators will have to find ways to hold them accountable. Conclusion: By adapting to the Fintech revolution, South African retail banks are hoping to become strategically pre-emptive rather than merely proactive. This will allow them not only to identify opportunities first, but also to offer solutions before competitors are able to do either of these.

FinTech evolution: Strategic value management issues in a fast changing industry

The FinTech revolution captures the simultaneous attack of a large number of technologies, notably mobile telephones and blockchain, which are ushering in efficiency or outreach to multiple niche markets. The use of mobile telephone technology has expanded Internet reach to the excluded, created possibilities for business where banks were not historically present and is potentially disruptive. The blockchain technology threatens to be even more disruptive as it may pull the carpet from under the monetary system as well as the property rights as we know them today. The proliferation of actors and innovators has created a confused landscape resulting in different possible scenarios, where banks may freeze, fight, form alliances with challengers, or be forced into flight by the BigTech.

Potential Impacts of the FinTech Revolution on Insurance Supervision and Industry

Potential Impacts of the FinTech Revolution on Insurance Supervision and Industry

Investorss Platform Choice: Moderating Effect of Platform Attributes and Regulations on Herding

Online peer-to-peer (P2P) lending, one of the most successful technology-enabled initiatives in the fintech revolution, has drastically changed the way how individual investors and borrows meet and transact. While prior research has found herding among investors at the loan listing level, such a social behavior was underexplored at a macro, platform level. In this study, we attempt to fill this gap by examining whether subsequent investors follow their predecessors' action when choosing which platform to invest, and if they do, how various platform attributes moderate herding behavior. We collect a novel data set from 127 leading platforms in a large P2P lending market. Our baseline analysis reveals that herding exists at the platform level. Using a multilevel mixed-effect model, we further identify several interesting moderators: investors' herding behavior is accentuated by platforms' market share and cumulative amount funded but attenuated by their time in operation. Finally, we find that government regulatory events dampen the magnitude of the herding effect, suggesting that more information disclosure and stricter operation standards for platforms reduces the value of observational learning to P2P investors. Our findings have managerial implications for platform owners and policy makers.

On the Fintech Revolution: Interpreting the Forces of Innovation, Disruption, and Transformation in Financial Services

The financial services industry has been experiencing the recent emergence of new technology innovations and process disruptions. The industry overall, and many fintech start-ups are looking for new pathways to successful business models, the creation of enhanced customer experience, and approaches that result in services transformation. Industry and academic observers believe this to be more of a revolution than a set of less influential changes, with financial services as a whole due for major improvements in efficiency, customer centricity, and informedness. The long-standing dominance of leading firms that are not able to figure out how to effectively hook up with the “Fintech Revolution” is at stake. We present a new fintech innovation mapping approach that enables the assessment of the extent to which there are changes and transformations in four areas of financial services. We discuss: operations management in financial services and the changes occurring; technology innovations that have begun to leverage the execution and stakeholder value associated with payments, cryptocurrencies, blockchain, and cross-border payments; multiple innovations that have affected lending and deposit services, peer-to-peer (P2P) lending, and social media use; issues with respect to investments, financial markets, trading, risk management, robo-advisory and services influenced by blockchain and fintech innovations.

Investor Platform Choice: Herding, Platform Attributes, and Regulations

Online peer-to-peer (P2P) lending, one of the most successful technology-enabled initiatives in the fintech revolution, has drastically changed the way individual investors and borrowers meet and transact. While prior research has found herding among investors at the listing level, such social behavior has been underexplored at a macro, platform level. In this study, we attempt to fill this gap by examining whether subsequent investors follow their predecessors’ actions when choosing which platform to invest, and if so, how various platform attributes and regulations moderate herding behavior. We collected a novel data set from leading platforms in a large P2P lending market. Our baseline analysis reveals that herding exists at the platform level. Using a multilevel model, we further identify several interesting moderators: the investor’s herding behavior is accentuated by platforms’ market share and the cumulative amount funded, but attenuated by their time in operation. Finally, we find that government regulatory events dampen the magnitude of the herding effect, suggesting that more information disclosure and stricter operation standards reduce the value of observational learning. The results from our analysis provide implications for P2P lending investors, platform designers, and policymakers.

Special Issue: Financial Information Systems and the Fintech Revolution

This Special Issue of the Journal of Management Information Systems was developed to build new foundations for research in the interdisciplinary space of the Fintech Revolution. Today, it seems tha...

New Blockchain Intermediaries: Do ICO Rating Websites Do Their Job Well?

Fintech revolution, crowdfunding and blockchain financing have dramatically reduced borrowing and lending transaction costs. Many argued that, ultimately, it would lead to complete disintermediation of start‐ups and SMEs financing. However, persistent asymmetric information and moral hazard problems led to creation of new cyber industry of intermediaries that play vital role in new innovative financing methods. We review the new ecosystem build around Initial Coin Offerings (ICOs) and study the role of the ICO aggregators, listing and rating agencies. We find statistical confirmation that extensive coverage of a particular ICO in the ICO aggregators’ lists is associated with more successful fundraising campaigns, although ratings data seem to vary considerably across different ratings websites and seem not to be of great quality, so investors should treat such ratings with caution.

How Big Data, AI and Blockchain Are Changing Finance: The Fintech Revolution

How Big Data, AI and Blockchain Are Changing Finance: The Fintech Revolution

The latest trends in the world competitiveness ranking

For over 25 years the IMD World Competitiveness Center has researched how nations and enterprises compete to lay the foundations for future prosperity. We asked professor Arturo Bris, the director of the Center, about the latest trends in the ranking, the next global crisis, as well as the fintech revolution.

한국 ETF 시장의 시스템적 리스크 분석 및 최적의 ETF 도입 순서에 대한 연구

Traditionally, the private wealth management industry has been dedicated to high-net-worth individuals due to expensive service costs. However, robo-advisors are making sudden rises during the on-going FinTech revolution. Robo-advisors aim to provide personalized wealth management services for everyone by using automated investment management algorithms and online distribution channels. To reduce service costs, robo-advisors mainly use ETFs to construct investment portfolios. Therefore, Korean ETF market should grow in both quantity and quality, in order for robo-advisors to succeed in Korea. In this study, we first analyze how vulnerable the Korean ETF market is to external or internal shocks in comparison with the U.S. ETF market. Then, we derive the optimal introduction sequence of ETFs in the Korean ETF market based on the modern portfolio theory.

Designing a robo-advisor for risk-averse, low-budget consumers

Banks have reacted much more enthusiastically to the FinTech revolution than many of their customers. Robo-advisory, automated web-based investment advisory, in particular promises many advantages for both banks and customers - but consumer adoption has been slow so far. Recent studies suggest that this might be due to a mix of low trust in banks, high expectations of transparency and general inability or unwillingness to engage with investment questions. Research in decision support and guidance shows customers’ willingness to interact with a decision support tool depends greatly on its usability. We identify requirements for robo-advisory, derive design principles and evaluate them in two iterations with a real robo-advisor in a controlled laboratory study. The evaluation results confirm the validity of our identified design principles.

Blockchain, Securities Markets and Central Banking

Distributed ledger technology, a variant of which is blockchain technology, represents one of the most important innovations of the fintech revolution. Academics, policymakers and market participants are experimenting with the technology with the aim of enhancing the functioning of financial markets. Industry consortia are being formed by the biggest financial institutions in the world seeking to leverage the use of the technology, in order to improve the clearing and settlement process. Furthermore, central banks in advanced and developing economies are examining the potential of using the technology in market infrastructures operated by central banks and are even exploring the possibility of issuing digital base money. Nevertheless, the widespread adoption of distributed ledger technology as envisioned by its ardent supporters encounters considerable legal obstacles, including the numerous new regulations imposed on financial markets and market participants in the aftermath of the financial crisis. The present paper will seek to disentangle the myths from the realities of the so-called distributed ledger technology or blockchain revolution and discuss how the legal regime can act both as an impediment and a catalyst to the widespread adoption of the technology.

The FinTech Revolution and Financial Regulation: The Case of Online Supply-Chain Financing – ERRATUM

The FinTech Revolution and Financial Regulation: The Case of Online Supply-Chain Financing – ERRATUM

The FinTech Revolution and Financial Regulation: The Case of Online Supply-Chain Financing

AbstractOnline supply-chain financing has been a relatively novel funding channel for suppliers as small- and medium-sized enterprises (“SMEs”) to obtain loans in that the revolution of financial technology (“FinTech”) transforms traditional supply-chain financing, which used to be administered only by official banks, to an online model also used by electronic commerce platforms (“e-commerce platform”). Endeavours towards financial inclusion of the underserved SMEs could rationalize why we should allow for or encourage FinTech innovations exemplified by the online supply-chain financing mentioned above. What would be an adaptive regulatory regime for such innovative FinTech-enabled financial services as the online supply-chain financing? Within our conceptual framework to regulate the FinTech industry at the early stage, rather than rigorous rules traditionally placed on large financial institutions, a principles-based strategy should be adopted to strike a balance between financial stability and access to financial services advanced by disruptive innovations. As a necessary complement, regulatory sandboxes would be needed to spur a shift in institutional philosophy to a principles-based regulatory regime. In other words, the regulatory attitude of FinTech regulation should be humble and light-touch to promote innovation for improving digital financial inclusion, albeit on the premise of containing potential systemic risk and protecting consumer interest in the meantime.

The FinTech revolution: Quantifying earnings uncertainty and credit risk in competitive business environments with disruptive technologies

Here we quantify the risks associated with the release and adoption of competitive products and services, and their impact on revenue generation and the value of the firm. Our model can be used for assessing the risks of business strategies whose revenues are used for the repayment of specific obligations, and for estimating the probability of default on those obligations under different normal and stress scenarios. Our approach also provides a simple framework for estimating synergies between firms in competitive environments with disruptive technologies such as FinTech versus traditional banking.

The Fintech Revolution: An Opportunity for the West African Financial Sector

Fintech provides alternative solutions and business models that could render traditional banking processes obsolete. This paper assesses the opportunity that could be taken to West Africa by using Fintech’s financial system. It describes the current West African financial sector, the way of digitization settlement, and lastly, the financial market segments of Fintech. Financial sector creates a massive amount of data exploiting by Fintech companies that are using to segment customer populations, identify opportunities for new products and services and optimize pricing. In this segment, products may use data and analytics to computerize the decision- making processes. Innovative start-ups, retailers, established banks, card companies and other payment services providers are the Payment systems that underpin the services that enable funds to be transferred between people and institutions. For the financial system (banking), Fintech offers sustainable and realistic opportunities by enhancing the value proposition and driving sales, reducing operating costs, making easy access to loans, and lowering interest rates. After showing the advantages of using Fintech services, the findings are that Fintech could improve both financial services and access to services in the West African economy.