Traditional Financial Institutions Research Articles

Research on the Relationship and Application of Cryptocurrency and Blockchain

This research paper discusses virtual currency and the blockchain technology that underpins it. Virtual money, frequently referred to cryptocurrency, is a digital method of payment that is not regulated by traditional financial institutions. It enables individuals to perform peer-to-peer transactions in a secure and efficient manner by using encrypted digital records. Cryptocurrencies like Bitcoin and Ethereum have garnered popularity due to their promise to transform financial institutions by enabling international and decentralized payments. Blockchain technology facilitates the operation of virtual currency. A blockchain is an immutable and decentralized digital ledger which keeps track of every single transaction in an easily accessible and tamper-resistant manner. Each transaction is organized into a block and linked to the one before it, forming a chain of blocks. This paper explores virtual currency and its foundation, blockchain technology. Cryptocurrency, a digital payment method, enables secure peer-to-peer transactions without traditional financial oversight. Prominent examples like Bitcoin and Ethereum offer potential for global and decentralized payments. Blockchain, an immutable digital ledger, supports virtual currency, recording tamper-resistant transactions in linked blocks.

Evaluating the impact of uncertainty and risk on the operational efficiency of credit business of commercial banks in China based on dynamic network DEA and Malmquist Index Model

There's a lot of uncertainty in the global financial system due to trade, political, and unforeseen issues. There are dangers and uncertainties in China's domestic financial market due to the ongoing effect of the global economic climate and the impact of the new coronavirus pandemic. Nonetheless, the conventional financial sector, which is controlled by commercial banks, continues to have a dominant position in China's financial system, with the traditional credit business model serving as its primary business model. As a result, the primary subject of this essay is commercial banks, a common kind of financial organization. The combination of the Malmquist Index Model with the new network DEA model takes into account the real circumstances faced by Chinese commercial banks. The three phases of the credit business operation process of commercial banks are capital buildup, loan issuing, and profit generation. To observe the effects of recent domestic market uncertainties and the high risk of emergencies like the epidemic on traditional financial institutions dominated by banks, this paper measures the efficiency of credit business of 26 listed banks in China from 2016 to 2022 and analyzes the operational efficiency of credit business of Chinese commercial banks from both static and dynamic perspectives. As a result, Chinese commercial banks and other established financial institutions are better equipped to reduce risks and uncertainties and support the steady growth of the country's financial sector.

AML for a blockchain age

Blockchain technology is not only unlocking important innovations in financial systems, it is also the foundation for powerful new tools used to combat illicit finance. This paper describes some of the ways that this technology not only enhances traditional compliance tools but also goes further, offering investigators unprecedented access to transactional data. The result is that virtual asset service providers, unlike traditional financial institutions, are not limited to static or opaque stores of customer information but can instead conduct more sophisticated analyses that are faster, more reliable and more dynamic than what was previously available. Given this new compliance landscape, this paper sheds light on where the most significant illicit finance threats are in the cryptocurrency ecosystem and, further, how regulators can support the development and adoption of powerful new compliance tools, including those using novel digital identity systems.

Analysis and Countermeasures to Alleviate the Financing Constraints of Small and Medium-Sized Enterprises

Purpose - Small and medium-sized enterprises are an important component of China’s national economy, but their financing channels are constrained by many factors. With the rapid development of financial technology, they have shown enormous potential in the field of financing for small and medium-sized enterprises. This study aims to analyze how fintech can alleviate financing constraints faced by small and medium-sized enterprises, and propose corresponding countermeasures. Through analysis and research, it has been found that financial technology has effectively expanded the financing channels of small and medium-sized enterprises by improving the accessibility of financial services, reducing transaction costs, and improving risk management capabilities. However, technical risks, regulatory uncertainty, and the financial transparency of the enterprise itself remain the main factors that constrain its development. To this end, constructive countermeasures and suggestions are proposed
 Design/Methodology/Approach - Based on the technical basis of fintech, this paper studies the problem of fintech alleviating the financing constraints of small and medium-sized enterprises.
 Findings - This paper studies mainly analyzes the mechanism of fintech alleviating financing constraints.
 Research Implications - Suggest strengthening the construction of financial technology regulatory framework, improving the internal financial management level of small and medium-sized enterprises, and promoting the coordinated development of financial technology and traditional financial institutions, in order to further release the positive role of financial technology in alleviating financing constraints for small and medium-sized enterprises.

Blockchain technology and application: an overview

In recent years, with the rise of digital currency, its underlying technology, blockchain, has become increasingly well-known. This technology has several key characteristics, including decentralization, time-stamped data, consensus mechanism, traceability, programmability, security, and credibility, and block data is essentially tamper-proof. Due to these characteristics, blockchain can address the shortcomings of traditional financial institutions. As a result, this emerging technology has garnered significant attention from financial intermediaries, technology-based companies, and government agencies. This article offers an overview of the fundamentals of blockchain technology and its various applications. The introduction defines blockchain and explains its fundamental working principles, emphasizing features such as decentralization, immutability, and transparency. The article then traces the evolution of blockchain, from its inception in cryptocurrency to its development as a versatile tool with diverse potential applications. The main body of the article explores fundamentals of block chain systems, its limitations, various applications, applicability etc. Finally, the study concludes by discussing the present state of blockchain technology and its future potential, as well as the challenges that must be surmounted to unlock its full potential.

Fusing futures: Financial institutions’ stock price response to fintech acquisitions

Traditional financial institutions are increasingly engaging in mergers and acquisitions (’M&As’) with financial technology (’fintech’) firms. Utilizing signaling theory, we argue that investors perceive an acquirer’s first fintech deal as a signal of commitment to a digitalized future. Our findings, based on 1681 fintech and nonfintech M&A deals, reveal that acquirers exhibit a significantly higher abnormal return for fintech deals than for nonfintech deals. This difference stems primarily from an acquirer’s first fintech deal. We rule out several alternative explanations, such as CEOs’ communication efforts to promote these deals. Consequently, a signaling effect seems likely.

Quantile connectedness and the determinants between FinTech and traditional financial institutions: Evidence from China

This study examines the connectedness and risk spillovers between Chinese FinTech and traditional financial institutions by using quantile-based vector autoregression (QVAR) networks. Specifically, by using daily data from January 2014 to June 2022, we focus on system-, sector-, and institution-level quantile connectedness characteristics, with the following findings. At the system level, the QVAR networks linking FinTech and traditional financial institutions are more connected at the extreme quantiles than at the median quantile. At the sector level, banks, real estate firms, and FinTech sectors act as net risk receivers, whereas securities and insurers act as net risk emitters. At the institutional level, risk transmission and reception of institutions significantly increase when market conditions rapidly change. We also investigate the determinants of quantile connectedness by using an exponential random graph model and find that (i) across different quantiles, the book-to-market and return on equity of institutions have a positive impact on their risk spillovers; (ii) at the extreme quantiles, the book-to-market is more pronounced than the return on equity; and (iii) at the median quantile, banks and FinTech institutions are more connected than insurers, real estate firms, securities, and other financials.

Analyzing the Impact of Open Data Ecosystems and Standardized Interfaces on Product Development and Innovation

The financial services industry is undergoing a seismic shift, driven by the convergence of technological advancements, regulatory mandates, and changing consumer expectations. Central to this transformation is the emergence of Open Banking, a strategic initiative reshaping traditional banking paradigms by advocating for collaboration, interoperability, and customer-centricity. Open Banking, fundamentally facilitated through standardized Application Programming Interfaces (APIs), enables secure and seamless sharing of customer-permissioned financial data and services between traditional financial institutions and external third-party developers. Concurrently, the API economy has emerged as a critical enabler of this collaborative model, offering a standardized interface that underpins the integration of diverse systems, allowing for the efficient exchange of data and functionality. This scholarly article delves into the intertwined realms of Open Banking and the API economy, aiming to elucidate their collective role in propelling collaborative financial services innovation. Open Banking serves as a pivotal force, affording financial institutions a comprehensive view of their customers' financial landscapes, thereby fostering the creation of tailored, responsive, and innovative financial solutions. Complementing this, the API economy acts as the technical scaffolding that enables seamless data sharing and integration, engendering a more connected, agile, and innovative financial ecosystem. By tracing the evolution of Open Banking from its origins to its present-day global presence, this research highlights its transformative potential, emphasizing its capacity to spur competition, drive innovation, and enhance customer experiences. Moreover, the significance of the API economy is analyzed, shedding light on its pivotal role in establishing open, standardized interfaces, thereby promoting a culture of collaboration and innovation. In conclusion, this article envisions a future where the symbiotic relationship between Open Banking and the API economy fuels an era of collaborative financial services innovation, ultimately leading to a more inclusive, efficient, and customer-centric financial landscape

The Role And Performance Of Baznas In Overcoming Poverty (Case Study Of The Deli Serdang National Amil Zakat Agency)

This study aims to assess the effectiveness of zakat in alleviating poverty in Deli Serdang. Zakat is allocated to eight categories, including the poor, the destitute, zakat administrators (amil zakat), converts to Islam (mu'allaf), slaves, individuals in debt, those engaged in jihad fi sabilillah, and travelers in need (ibn sabil). Zakat designated for the mustahik (recipients) can be utilized as capital for small-scale businesses, often inaccessible to traditional financial institutions like banks. The process of support includes planning, execution, monitoring, control, and program evaluation, and it is administered by the zakat amil agency as part of their productive zakat initiatives. This initiative aims to stimulate economic activity, enhance the productivity of local businesses, boost income, and ensure sustainability.
 The research methodology adopted is qualitative and descriptive in nature, focusing on assessing the impact of productive zakat on empowering impoverished communities through a poverty index. The study combines primary data, gathered through surveys, questionnaires, and in-depth interviews with both the program managers at Baznas and the mustahik participating in the community empowerment programs funded by productive zakat. Secondary data is sourced from the BAZNAS Program Report available online, as well as various literature, articles in publications such as magazines, journals, newspapers, and the internet. The research findings indicate that, overall, the mustahik community views the productive zakat program administered by Baznas as highly successful.

Bridging the financial divide: a bibliometric analysis on the role of digital financial services within FinTech in enhancing financial inclusion and economic development

Financial technology (FinTech) and financial inclusion have become increasingly significant as means to alleviate poverty, reduce income inequality, and promote economic growth. This study presents a bibliometric analysis of research on the role of digital financial services in promoting financial access and economic development between 2010 and 2023. Using Scopus database, 695 documents were selected, and Biblioshiny and VOSviewer software were employed for analysis. The study aims to identify research themes, analyze publication trends, assess geographical distribution, recognize influential authors, institutions, and journals, uncover highly cited articles, and determine research gaps. The results reveal a growing interdisciplinary interest in FinTech and financial inclusion, with a surge in research production since 2016, emphasizing the significance of digital financial services in addressing the limitations of traditional financial institutions. The findings also highlight influential authors, institutions, and publications that have shaped the discourse, global collaboration patterns, and emerging research themes and trends. Policymakers are encouraged to foster an environment conducive to the growth and integration of FinTech, while future research directions should focus on the impact of digital financial services on vulnerable populations, alternative financing solutions, and the potential of emerging technologies in advancing financial inclusion and economic development. This analysis underscores the importance of interdisciplinary collaboration, global cooperation, and vigilance in addressing the challenges and opportunities presented by the rapid adoption of digital financial services in promoting inclusive and sustainable economic development.

Research on risk contagion mechanism of big fintech based on the SIRS model.

In recent years, while the relationship between the new financial institutions, represented by financial technology companies, and the traditional financial institutions(banks, securities, insurance, etc.) has been steadily enhanced, a New Relational Network has silently emerged. Along with the rapid expansion of big fintech companies, the possibility of financial risk breeding and spreading in the New Relational Network is also rising. This article analyzes and simulates the risk contagion mechanism of big fintech risks based on the SIRS epidemic model. The study's findings imply that: when the number of big fintech companies infected with risk exceeds the risk threshold, the big fintech risk will spread in the New Relational Network. At this time, the number of big fintech companies infected with risk can be reduced below the threshold by enhancing the risk warning, risk management, risk buffering and blocking capabilities, and timely improving risk prevention and control measures in the post-infection phase. It means that the big fintech risk is controlled. For big fintech risks, proactive interventions are more effective than post-incident response measures. This paper makes the following recommendations for preventing big fintech risks: creating a risk monitoring and early warning system to raise the Big Fintech companies' direct immunization rates; strengthening the big fintech companies' risk management and risk mitigation capabilities; enhancing the internal and external supervision to achieve sustainable development of big fintech companies.

Financial Technologies: Digital Payment Systems and Digital Banking. Today's Dynamics

Financial technologies (FinTech) have been rapidly advancing in recent years, enabling transactions in financial markets to become faster, more efficient, and more secure. The use of advanced technologies such as artificial intelligence (AI) and machine learning (ML) provides significant advantages to the financial services sector. The complexity of financial markets and the need for swift action increase the demand for financial technologies.FinTech plays an important role in offering more services at lower costs, helping traditional financial institutions remain competitive, and creating new market opportunities. Additionally, it supports financial inclusion by increasing access to financial services and plays a vital role in achieving sustainable development goals. In this section, we discuss the importance of FinTech, the conveniences and advantages it brings to transactions in financial markets, and the opportunities it provides to market participants.

The Construction of a Management Control System in Traditional Financial Institution

Purpose: The Management Control System (MCS) has a crisis of meaning nowadays. Moreover, banking institutions with the highest risk level with liquid assets require a more comprehensive MCS. This research aims to develop an MCS concept that can be applied in traditional financial institutions as a more humane control system. Theoretical framework: This study provides a critique of the legitimacy theory related to MCS. An institution exists to gain legitimacy, but with a flawed control system, organizations practice creative accounting to gain a trust. Design/Methodology/Approach: This is qualitative research with a case study in one of the traditional banking institutions in Bali called Village Credit Institutions (LPD). The research paradigm uses postmodernism by adopting Lyotard's views using the binary opposition synergy methodology. Findings: The study results found that the construction of MCS was more suitable for use in the traditional banking sector. Organizations must pay attention to a sense of family, open management, and communication to create a sustainable organization. Have a good harmonious relationship with God, humans, and the environment. Research, practical & social implications: The practical implication that can be contributed to this research is implementing a culture-based control system in traditional financial institutions. A control system formed from people's habits can create absolute goal congruence. Originality/Value: This research produces a form of construction of a new model in MCS that has never existed before to create harmony with humans, the environment, and God.

Optimized byzantine fault tolerant algorithm for improving performance and security with trust values

AbstractBlockchain is considered to be a promising technology due to its decentralization, open, and non tamperation. Nevertheless, the current blockchain system cannot replace traditional financial institutions because its performance and security indicators in the consensus algorithm are not perfect. As one of the emerging capacity expansion technologies, sharding technology improves throughput by grouping users and processing transactions in parallel. This paper proposes an improved Byzantine Fault Tolerance algorithm TV‐BRAFT. TV‐BRAFT calculates a trust value for each user through an incentive mechanism. The sharding scheme based on the trust value is adopted to reduce the probability of malicious nodes being allocated to the same partition, thus improving the security of the system. In the consensus, the system selects users with qualified trust values to form a verification group to supervise the consensus process and avoid submitting error transactions to the blockchain. In order to prove that the TV‐BRAFT can resist Byzantine attacks, a recursive formula is used to prove the security of sharding and the security of consensus within one shard. Finally, the simulation results show that the TV‐BRAFT not only guarantees the fairness of incentives but is also better than the Raft and PBFT algorithms in efficiency and throughput.

Model Retraining: Predicting the Likelihood of Financial Inclusion in Kiva’s Peer-to-Peer Lending to Promote Social Impact

The purpose of this study is to show how machine learning can be leveraged as a tool to govern social impact and drive fair and equitable investments. Many organizations today are establishing financial inclusion goals to promote social impact and have been increasing their investments in this space. Financial inclusion is the opportunity for individuals and businesses to have access to affordable financial products including loans, credit, and insurance that they may otherwise not have access to with traditional financial institutions. Peer-to-peer (P2P) lending serves as a platform that can support and foster financial inclusion and influence social impact and is becoming more popular today as a resource to underserved communities. Loans issued through P2P lending can fund projects and initiatives focused on climate change, workforce diversity, women’s rights, equity, labor practices, natural resource management, accounting standards, carbon emissions, and several other areas. With this in mind, AI can be a powerful governance tool to help manage risks and promote opportunities for an organization’s financial inclusion goals. In this paper, we explore how AI, specifically machine learning, can help manage the P2P platform Kiva’s investment risks and deliver impact, emphasizing the importance of prediction model retraining to account for regulatory and other changes across the P2P landscape to drive better decision-making. As part of this research, we also explore how changes in important model variables affect aggregate model predictions.

Innovative Fintech Startups: What does the Future hold for Financial Institutions in Kenya?

Fintech startups play an important role, particularly where traditional financial institutions are unable to meet the growing need of the customers. Fintech startups combine IT and finance to develop financial services without the assistance of traditional financial institutions, but the sector is so fluid that startups must innovate continuously. This paper focused on Fintech Startups. The research was anchored on the balanced scorecard model, Schumpeter’s theory of innovation, and the lean start-up framework. Existing secondary data on fintech start-ups was analysed. The findings indicated that Kenyan government regulations, user authentication, and Government bureaucracy remains a serious hindrance to the future of startups. However, with growth of Fintech startups in the country the future is promising and thus changing the land scape of the traditional financial institutions. The study recommends that the governments could allow Fintech startups to visionary new products and technology to meet underserved customer requirements while enforcing light regulations contact in the early phases. The tradition financial institutions should collaborate with the Fintech firms to strengthen their competitive edge and thus performance.

The Future of Finance: Fintech and Digital Transformation

The realm of financial technology, or fintech, has been increasingly gaining attention and interest as it pertains to the integration of technology in financial services. This paper endeavors to provide an overview of various facets of fintech, including its impact on online payments, Peer-to-Peer (P2P) lending, Robo-advice, and blockchain technology. One significant effect of fintech is observed in the area of online payments, where traditional banking methods are being substituted with more advanced online payment systems. Fintech has emerged as a promising solution to the challenge of convenient, secure, and fast payment transactions for goods and services. P2P lending, another fintech innovation, enables borrowers to obtain loans without having to go through traditional financial institutions. This process has been simplified and made more accessible through the use of fintech platforms that connect borrowers with lenders. The paper also addresses the use of Robo-advice in fintech, which utilizes algorithms and artificial intelligence to provide financial advice to clients. Robo-advice technology has increased accessibility to financial advice for a more extensive range of people, reducing the barriers that might have limited access to this type of financial service. Finally, this paper examines the importance of blockchain technology in fintech, with its potential to streamline processes and ensure security in financial transactions. The decentralized nature of blockchain technology offers a robust solution to financial security, ensuring that transactions are secure, transparent, and immutable. In conclusion, the essay underlines the transformative potential of fintech in the financial industry with its numerous innovations.

Peer-to-Peer (P2P) Lending Risk Management: Assessing Credit Risk on Social Lending Platforms Using Textual Factors

Peer-to-peer (P2P) lending platforms offer Internet users the possibility to borrow money from peers without the intervention of traditional financial institutions. Due to the anonymity on such social lending platforms, determining the creditworthiness of borrowers is of high importance. Beyond the disclosure of traditional financial variables that enable risk assessment, peer-to-peer lending platforms offer the opportunity to reveal additional information on the loan purpose. We investigate whether this self-disclosed information is used to show reliability and to outline creditworthiness of platform participants. We analyze more than 70,000 loans funded at a leading social lending platform. We show that linguistic and content-based factors help to explain a loan's probability of default and that content-based factors are more important than linguistic variables. Surprisingly, not every information provided by borrowers underlines creditworthiness. Instead, certain aspects rather indicate a higher probability of default. Our study provides important insights on information disclosure in the context of peer-to-peer lending, shows how to increase performance in credit scoring and is highly relevant for the stakeholders on social lending platforms.

A REVIEW OF A FINTECH FINANCING PLATFORM: POTENTIAL AND CHALLENGES OF ISLAMIC CROWDFUNDING TO ENTREPRENEURS

The emergence of financial technology, known as fintech, has altered the landscape of traditional financial institutions. Broadly defined, fintech is the application of technology in finance. Conventional and Islamic crowdfunding platforms are fintech innovations that offer a great alternative to traditional financial lenders like banks. This paper aims to provide insights regarding crowdfunding as an alternative fundraising source for entrepreneurs, especially start-ups, who usually face financial challenges. This paper uses a deskresearch methodology to review the extant literature on crowdfunding as an entrepreneur's funding source. Findings show that crowdfunding adoption is rapidly increasing and is embraced by many underserved entrepreneurs. As a promising alternative, it offers excellent potential by providing services at a lower transaction cost and greater efficiency. It also covers a broader market penetration. Islamic crowdfunding benefits even more, as the nature of Islamic financing helps to curb excessive credit expansion, thus helpingto stabilise the economy. The application and importance of Islamic crowdfunding are in line with the three classes of Maqasid-Shariah, which are darūrāt (necessities), ḥājīyāt (needs), and taḥsīnīyāt (luxuries). Nevertheless, crowdfunding is not without problems and challenges. Major problems usually arise from regulatory and fraud issues, such as stolen ideas and lack of proper regulations. This paper may help create awareness about crowdfunding, its potential, and its challenges to entrepreneurs. The findings may alsoserve as reference points for future researchers to examine further the issues and challenges in the crowdfunding industry, especially Islamic crowdfunding, in promoting competency and sustainability for entrepreneurs' interests.

Decentralized Autonomous Organization (DAO): The case of MakerDAO

The global adoption and diffusion of cryptocurrencies and blockchain technologies has given rise to a new form of organizing referred to as decentralized autonomous organizations (DAO). Many DAOs sit at the intersection between decentralized blockchain technologies and finance, so-called decentralized finance (DeFi). This teaching case focuses on one of the most prominent and established DeFi DAOs, MakerDAO, a community-driven initiative that leverages blockchain technology to create a stablecoin pegged to the US Dollar as a basis for decentralized financial services such as lending and yield generation. The case describes the delicate balancing act between centralization and decentralization in the evolution of MakerDAO. It can be used in graduate business programs to achieve the following learning objectives: (1) Understand the concept of decentralized autonomous organization (DAO) as a new form of organizing in which communities leverage blockchain technologies and community-based principles to work jointly on a common goal, (2) Be able to assess the benefits and risks of novel decentralized finance (DeFi) models, such as MakerDAO, which offer alternative financial tools and resources that are not controlled by traditional financial institutions, (3) Evaluate the potential and pathway for disruptive innovation in the era of blockchain, cryptocurrencies, and Web3, where decentralized applications (dapps) on blockchain networks enable decentralized and trustless transactions and interactions.