Disruptive Technology in Banking and Finance: An International Perspective on FinTech (Palgrave Studies in Financial Services Technology)

This book exemplifies the potential of FinTech to deliver important economic and societal gains, such as enhancing competition and financial inclusion to deliver tailored financial products and services at more affordable prices and at greater convenience. The emergence of FinTech directly challenges the business models of incumbent financial intermediaries like banks, which are adapting by developing their own FinTech offerings and partnering with FinTech and large technology firms. FinTech also constitutes both known and unknown risks to financial stability and challenges regulators to evaluate whether existing regulations are sufficient. The emergence of FinTech as a global phenomenon requires insightful cross-country analysis and different perspectives to evaluate its development and associated opportunities and challenges. This book will be of interest to practitioners, regulators and students of this essential enabling technology that is a major component of the Fourth Industrial Revolution. Disruptive Technology in Banking and Finance Foreword Contents Notes on Contributors List of Figures List of Tables 1 Introduction 1.1 FinTech: Covid-19 and the Global Financial Crisis (GFC) 1.2 Organization of Chapters in This Book 2 A Historical Perspective on Disruptive Technologies 2.1 A History of Technology and Finance: From the Dawn of Technological Development in Banking and Financial Markets to the Birth of FinTech 2.2 Phase 1 (Up to 1960s) and Phase 2 (1960s–2008): From Zero to Hero 2.2.1 Phase 1 (1860s–1960s): Analogue Technology, Much Paper 2.2.2 Phase 2 (1960s–2008): First Technological Changes 2.2.2.1 Banking Services 2.2.2.2 The Evolution of the Payment System and the Birth of the New Customers 2.2.2.3 Trading Services Become More Electronic 2.3 Phase 3 (2008–2020): FinTech Disruption 2.3.1 The FinTech Companies 2.3.1.1 Lending Services and Debt or Equity Crowdfunding 2.3.1.2 Payments and Money: From e-Money to Cryptocurrencies and Stable Coins 2.3.1.3 Asset Management and Investment Services 2.3.1.4 InsurTech 2.3.2 The Role of BigTech Companies 2.3.3 The Incumbent Companies 2.4 Phase 4 (Post-2020): What’s Next? References 3 A Taxonomy of FinTech Innovation 3.1 Part 1: Introduction to Innovation 3.1.1 Innovation as a Driving Force of Economic Growth 3.1.2 Innovations in the Finance Industry 3.1.3 The Emergence of FinTech 3.2 Part 2: A Taxonomy of FinTech Innovation Based on Patents 3.2.1 Identifying Key Areas of Innovation Using Patent Data 3.2.1.1 Payments Channels 3.2.1.2 Banking Channels 3.2.1.3 Financial Entities 3.2.1.4 Reporting Analytics 3.3 Conclusion References 4 Cryptocurrency Mining Protocols: A Regulatory and Technological Overview 4.1 Introduction 4.2 The Digitalization of Money 4.3 Central Bank Issued Digital Currencies 4.4 Cryptocurrencies and Blockchain: Country Responses 4.5 A Short History of Ledgers 4.6 Centralized vs Decentralized Ledgers 4.7 Cryptocurrencies as Fiat And as an Accepted Form of Payment 4.8 Consensus Algorithm Employed to Secure Network 4.9 Concluding Remarks References 5 The Development of InsurTech in Europe and the Strategic Response of Incumbents 5.1 Introduction 5.2 The New Insurance Landscape 5.3 Measuring Market Reaction to Incumbents’ Investments in InsurTech Start-Ups 5.3.1 Descriptive Statistics 5.3.2 Event-Study Results 5.4 Conclusions References 6 FinTech and Banking: An Evolving Relationship 6.1 Introduction 6.2 FinTech: A Disruption in the Financial Sector 6.2.1 FinTech Services 6.2.1.1 Services Oriented Towards Consumers: B2C FinTech 6.2.1.2 Services Oriented Towards Firms: B2B FinTech 6.2.2 The Global FinTech Phenomenon 6.2.2.1 FinTech Population 6.2.2.2 FinTech Credit 6.2.2.3 FinTech Investments 6.2.2.4 FinTech Adoption 6.3 The Banking Sector in the Face of the Emergence of FinTech 6.3.1 Banks’ Digitalization 6.3.2 New Banking Technologies 6.3.3 The Digital Transformation of the Finance Industry: A SWOT Analysis 6.3.4 Scenarios of Future Banking 6.4 Banks and FinTechs: An Evolving Relationship 6.4.1 FinTech’ License 6.4.2 Competition, Collaboration, and Coopetition 6.4.3 Bank and FinTechs Alliances 6.5 FinTech and Banks: The Provision of Financial Services in the Post COVID-19 Era 6.5.1 The Impact of COVID-19 6.5.2 Digital Finance in the Post-COVID-19 Era References 7 FinTech Cultures and Organizational Changes in Financial Services Providers 7.1 Introduction 7.2 Rules and Cultures as Mechanisms Influencing FSP Innovative Behaviour 7.3 Cultural and Organizational Challenges in Front of FinTech Innovation 7.4 Current and Future Issues Associated with Managing FinTech Cultures and Organizational Changes, Including Future Research Streams 7.5 Concluding Thoughts References 8 Digital Disruption: How the Financial Services Landscape Is Being Transformed 8.1 The Potential Disruptive Power of Fintech 8.2 The Role of Financial Markets 8.3 Are Incumbent Financial Services Players Up to the Challenge? 8.4 Fintechs Embrace Disruptive Technologies and Applications 8.5 Cloud Computing 8.6 Regtech Responds to the Call for Greater Compliance 8.7 Blockchain and DLT 8.8 Artificial Intelligence and Machine Learning 8.9 Payments 8.10 Credit Markets Disrupted 8.11 Digital Banking 8.12 Insurtech 8.13 Stakeholders in the Fintech Ecosystem 8.14 Conclusion References 9 FinTech and Regulation: From Start to Boost—A New Framework in the Financial Services Industry. Where Is the Market Going? Too Early to Say 9.1 Introduction 9.2 Setting the Scene: Banking Under Deep Transformation 9.2.1 Why is This Happening Now? 9.2.2 The Role of Regulators and Authorities 9.2.3 New Frameworks for Financial Services and Evolving Stages of Value Chains 9.2.4 Nascent Business Ecosystems in a Nutshell 9.3 Challenging Regulators to Balance Innovation, Stability, and Customer Trust 9.4 Conclusions References 10 Bigger Fish to Fry: FinTech and the Digital Transformation of Financial Services 10.1 Introduction 10.2 FinTech in the UK 10.3 Financial Innovation Policy: A Conceptual Framework 10.4 The Example of UK InsurTech 10.4.1 Market Failures 10.4.2 Organisational Failures and Governance 10.5 Conclusion References 11 Conclusion: Fintech—A Perfect Day or Walk on the Wild Side? 11.1 Introduction 11.2 The Institutions 11.3 Banks, Market Power, and Business Models 11.4 Fintech Innovations and Associated Risks 11.5 The Evolving Market Structure 11.5.1 The Impact of COVID-19 11.5.2 Fintech Adoption Rates and Impact on Banks 11.5.3 Impact of Fintech on Core Banking Activities 11.5.4 Fintech and Credit 11.5.5 Linkages Between Fintech and Banks and the Financial Ecosystem 11.5.6 Fintech and Financial Inclusion 11.5.7 Scenario Analysis 11.6 Concluding Remarks Bibliography Index "This great new book offers valuable and timely insights on FinTech from various vantage points. Written by a cohort of distinguished academics and practitioners, the reader is treated to constructive analysis and presentation of developments in the field of FinTech and its potential impact on financial services, and banks in particular, as well as the economy and society at large. Anyone interested in the origins and meaning of FinTech and how it has emerged as a disruptive though arguably positive influence from a competition perspective will enjoy reading this book. Apart from the incredible opportunities afforded by FinTech, this book examines the potential for both old and new risks to arise, and identifies challenges facing policy makers and regulators to secure their multiple objectives, such as, greater competition, financial stability, consumer protection and welfare gains. This book would be of particular interest as a text to contemporary business school courses looking to explore the role of financial technology as a disruptor to banking, finance and insurance sectors, as well as to the more casual reader with an interest in getting up to speed on this emergent and exciting area"--Professor Martin Meyer, Vice Rector for International Affairs and Director of InnoLab (Professor of Innovation), University of Vaasa, Finland Timothy King is Director of the Centre for Quantitative Finance at the University of Kent. His research interests include Banking, FinTech, Corporate Governance and Corporate Finance. He has published in leading academic journals including the Journal of Corporate Finance and British Journal of Management. Francesco Saverio Stentella Lopes is Senior (type B) Researcher at the University of Rome. His research focuses on Banking and Innovation, and he has published in renowned academic journals including the Journal of Financial and Quantitative Analysis and the Journal of Banking and Finance. Abhishek Srivastav is currently Senior Lecturer in Finance at the University of Edinburgh. His research interests include Empirical Corporate Finance, Climate Change and Financial Intermediation. He has published in leading academic journals, including the Journal of Accounting and Economics and Management Science. Jonathan Williams is Professor of Banking and Finance at Bangor University, Co-Director of the Institute of European Finance, Chair of the European Association of Teachers of Banking and Finance, and Editor of World Banking Abstracts. His main research interests are in Empirical Banking