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No. 103 - Digital Innovation & Finance Transformation

DigiWorld Economic Journal - C&S - 12/09/2016 No. 103 - Digital Innovation & Finance Transformation

No. 103 - 3rd quarter 2016

Over the past several quarters, digital innovation has been marked by the FinTech sector's emergence as one of the top targets for investment, with a by-product of growing enthusiasm over the prospects opened by the blockchain concept.
How do we define the scope of FinTech?
What is behind this boon of financial innovations born of FinTech?
The purpose of this dossier is not so much to take an X-ray look at FinTech in and of itself, but rather its relationship with the finance industry, and how it might impact its professions, its players and the regulations that govern it.


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Dossier

Digital Innovation & Finance Transformation

Edited by Yves GASSOT, Jooyong JUN & Marianne VERDIER


Foreword
By Yves GASSOT, Director of Publication

Introduction
By the Editors


Papers


How Personal Finance Management Influences Consumers' Motivations and Behavior Regarding Online Banking Services
Marie HAIKEL-ELSABEH, Sébastien NOUET & Maximilien NAYARADOU

Competition for Lending in the Internet Era: The case of Peer-to-Peer Lending Marketplaces in the USA
Carlotta MARIOTTO

Equity Crowdfunding: Start-up Selection by the Crowd
Véronique BESSIERE & Éric STEPHANY

Digital Currencies: Beyond Bitcoin
Hanna HALABURDA

Blockchain / Distributed Ledger Technology (DLT): What Impact on the Financial Sector?
Alexis COLLOMB & Klara SOK

Explaining the Mobile Money Adoption-Usage Gap

Kas KALBA

Competition Policy and the Financial Technology Revolution in Banking
Alistair MILNE


Interviews

Jean-Hervé LORENZI, Pole of Competitiveness "Finance Innovation"
Conducted by Yves GASSOT

Olivier DUCHENNE & Sophie EOM, Solidware
Conducted by Jooyong JUN


Features


Firms and Markets

Is Fintech Eating the World of Financial Services, One API After Another?
Matthieu SOULÉ
Mobile Payment: The State of the Industry, Amid New Stakes
Hao YI
Payment System Policy Roadmap - Vision 2020
Payments and Settlements System Department, Bank of Korea


Author biographies

Dossier

Digital Innovation & Finance Transformation


How Personal Finance Management Influences Consumers' Motivations
and Behavior Regarding Online Banking Services

Marie HAIKEL-ELSABEH & Sébastien NOUET, Maximilien NAYARADOU
Key words: aggregators, digital bank services, Personal Finance Management, motivation, behavior.

The advent of the digital bank has enhanced the consumer experience and capacity to manage personal finance. Banks need to adapt to the increasing demands of consumers for personalized, easy to use, and interactive digital banking services. Banks are increasingly challenged by companies of the Fintech that offer new financial services. In this context, the Fintech that sell PFM with aggregation features provide an innovative offer to both consumers and banks. A qualitative research was conducted: heads of Fintech companies, and consumers were interviewed. Our research fills a gap in the literature by explaining the motivations for the adoption and use of PFM tools.


Competition for Lending in the Internet Era: The case of Peer-to-Peer Lending Marketplaces in the USA
Carlotta MARIOTTO
Key words: peer-to-peer lending, two-sided markets, crowdfunding, bank competition, non-banks, platform competition, Internet banking.

Peer-to-peer lending marketplaces are a phenomenon in great expansion in the USA and Europe. These online platforms build an example of a two-sided market as they try to attract and match lenders and borrowers, while facing the trade-off between increasing the volume of intermediated transactions and minimizing the risks. In this article, we provide a descriptive analysis on the competitive strategies used by these platforms, in a two-sided market environment, and we try to find whether these two platforms differentiate from each other or from banks. To provide evidence on this comparison, we exploit data obtained by Prosper and LendingClub websites, the two leading peer-to-peer lending platforms in the USA, for the years 2006-2013 in the case of Prosper, while for LendingClub they are for the years 2007 until 2014. We deduce that these platforms are substitutes with one another and that they are frontally competing.


Equity Crowdfunding: Start-up Selection by the Crowd
Véronique BESSIERE & Éric STEPHANY
Key words: Crowdfunding, entrepreneurial finance, business angel, venture capital, expertise, innovation.

This article discusses the implications of crowdfunding for start-up financing. Our exploratory approach is based on a detailed analysis of a leading equity crowdfunding (ECF) platform in France and integrates a wide-ranging literature on entrepreneurial finance, crowdsourcing, entrepreneurship and behavioural approaches. Two fundamental aspects are addressed: (1) the selection and analysis of projects, which are displaced from venture capital professionals towards the crowd, and (2) the motivations and contributions of the crowd, who not only provide capital to start-ups but also and significantly, cognitive resources. In addressing these two aspects, the article provides fresh insights into what differentiates ECF from traditional seed capital.


Digital Currencies: Beyond Bitcoin
Hanna HALABURDA
Key words: digital currencies, cryptocurrencies, network effects

In this article, we review the recent developments in the digital currency landscape. We survey the economic drivers that led to the creation of digital currencies and show that they are a natural step in the evolution of means of payment. We overview two major classes of digital currencies, cryptocurrencies and platform-based digital currencies and discuss how the design of such currencies affects the incentives of their users and ultimately their popularity. Finally, we discuss competition in the digital currency market.


Blockchain / Distributed Ledger Technology (DLT): What Impact on the Financial Sector?
Alexis COLLOMB, Klara SOK
Key words: blockchain, distributed ledger technology (DLT), financial markets, corporate finance and governance, disintermediation, post-trade infrastructure.

Blockchain technology, along with distributed ledger technology (DLT), has caused quite a stir over the last year as many experts now consider that it has the potential for facilitating multiple bursts of creativity and catalysing an exceptional level of digital innovation not seen since the advent of the Internet. Of all sectors, the financial one in particular is very likely to be the most impacted by the technology's potential for disruption. In this article, we first present the essential aspects of the new transactional model that DLT brings about. We then outline what we estimate to be the main areas of applications of DLT to finance, whether for capital markets or corporates. Last but not least, we attempt to evaluate the likely impact of DLT on financial markets, with a particular focus on the post-trade infrastructure for which DLT seems particularly promising.


Explaining the Mobile Money Adoption-Usage Gap

Kas KALBA
Key words: mobile money, digital financial inclusion, Africa, innovation adoption, demand analysis.

Innovation adoption in the ICT sector has been the focus of a growing body of research in recent years and of theoretical framing going back more than 50 years (ROGERS, 1962, 2003). Yet with the appearance of the latest widespread innovation in the sector—namely, mobile money—the research is of limited explanatory and predictive value, as the paper illustrates. While the research offers a growing range of factors that can determine the pace and breadth of innovation adoption, it provides limited guidance in how factors coalesce in fostering or limiting adoption and use of specific ICT innovations in given contexts, such as low-income economies. It is particularly challenging to apply innovation adoption theory and previous studies to mobile money because of mistaken impressions and the limited data available to understand this new area of ICT innovation. Specifically, the impression prevails that the use of mobile money is commonplace in a growing number of countries, particularly in Sub Saharan Africa (SSA) and parts of Asia. Yet mounting evidence, including recent surveys and other field research in Cote d'Ivoire (presented in the paper), indicates that there is a wide gap between the number of persons who register for mobile money services and those that use the services even semi-regularly.
This paper identifies and explains several possible reasons or hypotheses for this MM adoption-usage gap. It also identifies the kind of data and definitional issues that need to be addressed in determining the credibility of the respective hypotheses, which focus on factors such as access to mobile phones, digital literacy, the effects of MM service fees, fee-avoidance gaming techniques, and income seasonality. The hypotheses also encompass supply-side influences, including the role of MM marketing campaigns, the breadth and quality of agent networks, and the implications of registration incentives.
The paper discusses the implications of the Cote d'Ivoire findings with respect to the above hypotheses, proposes directions for future research, and formulates recommendations for policy development that would foster MM usage and digital financial inclusion.


Competition Policy and the Financial Technology Revolution in Banking
Alistair MILNE
Key words: Access regulation, APIs, central bank money, competition law, incentives for innovation, financial infrastructure, financial technology, network economics, payment schemes, payments governance, platform competition, RTGS, SEPA, technology adoption.

This paper argues that the more ambitious prognosticatons of the outcome of the current "Fintech" revolution, a transformation of banking to the benefit of customers, depend critically on the appropriate use of competition law and policy, in particular the regulation of access to banking platforms. Without supportive intervention of this kind by regulators and central banks to promote incentives for adoption, for example through requiring standardised information exchange through "application programming interfaces" (APIs) and widening access to central bank money, incumbents are likely to successfully resist substantial change.
Key words: Access regulation, APIs, central bank money, competition law, incentives for innovation, financial infrastructure, financial technology, network economics, payment schemes, payments governance, platform competition, RTGS, SEPA, technology adoption.

The guest Editors

Jooyong JUN is a research economist at the Bank of Korea Economic Research Institute, and a member of International Editorial Board of Digiworld Economic Journal. Prior to join BOKERI, he had worked at Korea Information Society Development Institute. He received a PhD in economics from University of Michigan in 2009 and has publications in microeconomic theory, telecommunications, and finance. His current research interest includes microeconomics, financial intermediation and industry, and financial technology (FinTech).

Marianne VERDIER is a Professor of economics at the University Paris 2 Panthéon Assas, a researcher at CRED (Centre de Recherches en Economie et Droit) and an associate researcher at CERNA (Mines ParisTech). She is the Director of the Master's degree in Finance "Assas Finance" at the University Panthéon Assas. She received a PhD from Telecom ParisTech in economics and has worked as an expert for the payment card scheme “Le Groupement des Cartes Bancaires, CB”. She has published is several journals about payment systems, platform indutries and innovation in retail banking, such as Journal of Banking and Finance, Journal of Economic Surveys, International Journal of Industrial Organization, or DigiWorld Economic Journal.
http://cred.u-paris2.fr/verdier


The interviewees

Jean-Hervé LORENZI, Major at the Agrégation des facultés de droit et sciences economies (Faculties of Law and Economics) in 1975, is Chairman of the Cercle des économistes (the famous circle of French economists), holder of the Chair "Demographic Transition, Economic Transition within the Fondation du Risque (Foundation of the Risk)" and Chairman of the Pôle de Compétitivité (Pole of Competitiveness) "Finance Innovation". He is a member of the Board of Directors of the Edmond de Rothschild France Group, of the supervisory board of Euler Hermes and the Boards of directors (board meetings) of the Médéric Alzheimer Foundation, the IDATE and the BNP Paribas Cardif. He was Professor at the university Paris-Dauphine and the member of council of economic analysis. He has notably published: Un monde de violences. L'économie mondiale 2015-2030, Paris, Eyrolles, 2014; Rajeunissement et vieillissement de la France (with J. Pelletan and A. Villemeur), Paris, Descartes & Cie, 2012; Droite contre gauche, (with O. Pastré), Paris, Fayard, 2012; Le fabuleux destin d'une puissance intermédiaire, Paris, Grasset, 2011; Le choc des populations: guerre ou paix, (in collaboration with P. Dockès), Paris, Fayard, 2010.

As a Co-founder of Solidware and Chief Machine Learning Scientist who has 8 years of experience in various fields including machine learning, computer vision and big data, Olivier DUCHENNE leads algorithm development and IT integration at Solidware. After receiving his Ph.D in Computer Science at ENS Paris/INRIA, he did his research as Postdoctoral Fellow at Carnegie Mellon University. As a famous, highly cited researcher in academia with more than 500 citations, he received the Best Paper Award at 2009 CVPR Conference. He also worked as a researcher at NEC Labs (formerly called Bell Labs) in Cupertino. Moving past the world of academia, he stepped into the business world, where his passion to develop the technology that can be applied in the real world can come to life. Working as a Senior Researcher at Intel, Olivier developed many machine learning algorithms including face recognition, and he currently has 3 patents pending. He also stood before many people as a speaker at Carnegie Mellon Univiersity, Samsung Electronics, Tokyo Univiersity, Seoul National University, and more. The solution that Solidware provides is not only the essence of Olivier’s long-time research, but it is also his passion to make the solutions applicable with limited resources and time.

As a Co-founder of Solidware and Business Lead, Sophie EOM is in charge of managing the entire business including sales and business development. She graduated Seoul Science High School, and received her B.S. in Chemistry and Business Administration at Seoul National University. Sophie received her Master’s degree in Finance at HEC Paris. After graduation, she worked at Oliver Wyman Financial Services as a consultant and AXA Global Direct Korea as an Executive Assistant to CFO. She took charge of many significant works of AXA, including Post-Merger Integration of ERGO Daum Direct, an M&A deal for establishing Chinese branch of AXA, various business planning and customer data analysis. After leaving AXA, Sophie co-founded Solidware and established the infrastructure for growth through her initiatives and drive. Keeping in mind the motto of “There is no data analysis technology which can bring outstanding results without understanding clients’ business and efficient communication”, Sophie is linking Engineer Team of Solidware with clients to provide the best solution.


Contributors to the dossier

Veronique BESSIÈRE
is Professor at IAE School of Management and MRM (Montpellier Research in Management) – University of Montpellier (France). She chairs the Department of Management Science and supervises – with Éric Stephany  - the Master’s degree in Innovation Management. She also co-leads a research programme in Labex Entreprendre. Her research interests focus on entrepreneurial finance and decision-making process. She has published articles in Journal of Economic Psychology, Managerial Finance, Applied Financial Economics, Finance, International Business Research, Bankers, Markets & Investors, and in several French academic journals.

Alexis COLLOMB began his career in the financial services industry, first as an investment banker in New York, then as an equity derivatives and cross-asset strategist in London. He joined the Cnam in 2011 as professor of finance and was appointed chair of its economics, finance, insurance and banking department, which includes Cnam’s Ecole nationale d’assurance (Enass). After an initial undergraduate degree in network engineering, Alexis studied economics and finance and holds a master's in engineering-economic systems and a PhD in management science from Stanford University. He has also studied artificial intelligence in Japan. Alexis is a member of Cnam's LIRSA (EA 4603) research center and sits on Labex Refi's Scientific Advisory Board. His current research focuses on the digital transformation of financial and insurance services, particularly on how blockchain technology is likely to reshape financial markets.

Marie HAIKEL-ELSABEH is the head of the MBA Digital Marketing Strategy at the Business School of the Pole Léonard de Vinci (EMLV). She also contributed to the creation of the double diploma, Digital Marketing and Data Analytics, with the IIM. Her research interests include digital marketing, and the use of digital services. Since her arrival at the EMLV she pursued new research in collaboration with Orange about smart objects. She has a PHD in Management from the University of Paris Ouest Nanterre/ Mines Telecom Institute. Her former position in the Social network Chair of the Mines Telecom Institute, gave her the opportunity to develop new research on virtual communities and social networks, in collaboration with Solocal, and the group Seb.
marie.haikel-elsabeh@devinci.fr

Hanna HALABURDA is a Visiting Professor of Management at New York University Stern School of Business and a Senior Economist at the Bank of Canada. Before joining Stern, Professor Halaburda was an Assistant Professor at the Harvard Business School. Her research uses game theory to study how technology influences network effects and interactions in the marketplace and how these changes affect business models. Much of her work focuses on competition between platforms, e.g. Apple’s iPhone vs. Android or eHarmony vs. Match. Most recently, her research applies platform competition concepts to analyze the development of digital currencies.
hhalaburda@gmail.com

Kas KALBA is the founder of Kalba International and leads its development consulting practice. He has recently headed broadband and ICT strategy and Public Private Partnership projects for governments in Africa, Asia and Eurasia as well as for the World Bank. He has also consulted to numerous mobile operators on market assessment, competitive strategy and spectrum/licensing issues.  He is the author of studies on the factors that heighten or impede mobile phone and broadband adoption in developed and developing countries, and has taught related courses at Harvard, Yale and MIT. His recent paper, "Broadband Strategy, ICT Strategy--Does It Matter?" at the IIC Forum in Johannesburg, December 8, 2015, examined whether national strategies have any effect on broadband penetration levels.

Carlotta MARIOTTO graduated from the Bachelor and Master of Science in Economic and Social Sciences at the Bocconi University in Milan, and is currently a PhD student supervised by Marianne Verdier at the centre for industrial economics CERNA at the institute Mines-Paristech in Paris. Her research deals with innovations and regulation in retail banking, and, in particular, she is interested in regulatory concerns and competition issues in payment systems and innovative lending markets.

Alistair MILNE
is Professor of Financial Economics at the School of Business and Economics, Loughborough University. He is also a visiting scholar at the Monetary Policy and Research Department of the Bank of Finland. Previously he was senior lecturer and then reader in banking and finance at Cass Business School, City University of London; and has worked at the Bank of England; the University of Surrey, London Business School, HM Treasury and for the Government of Malawi. He is the author of a comprehensive account of the global credit crisis "The Fall of the House of Credit". He holds a PhD in economics from the London School of Economics. His principal current research interests are on the role of banks in the macroeconomy and on the implications of innovation in information technology for financial services. He has over one hundred journal publications on a variety of subjects, include financial systems and regulation, especially in relation to systemic financial risk; European sovereign debt; bank capital management and regulation; the impact of bank balance sheets on monetary transmission; and financial infrastructure and technology especially in the areas of post-trade processing and payment systems. He does regular media work and consults for a variety of public and private organisations.

Maximilian NAYARADOU
holds a doctorate in economics from Paris Dauphine University. He is an economist specialised in intangible investments (advertising, R&D, patents, software, innovation). Maximilian was economist at the Union of Advertisers, researcher at IEP of Lille, and statistician at the National Cancer Institute. Research engineer at the Europlace Institute of Finance, responsible for monitoring research projects, its area of competence was widened to Market Finance and Insurance Economics. He held the post of secretary general at the Groupama Chair in Dauphine that he has developed during three years. Maximilian is now director of the research & development projects, at the Finance Innovation cluster, where he is responsible for "sourcing" and for support for collaborative projects University/Company.

Sébastien NOUET is a member of the French Actuary Institute and holds a doctorate in statistics from Paris Dauphine University. He has been working in the sectors of bank and insurance, on the internal models (Bale and Solvency 2) and on the long term care insurance products. He is researcher at the Leonard de Vinci University, in Paris, in quantitative methods applied to insurance and banking subjects.
sebastien.nouet@devinci.fr

Klara SOK is a research fellow at the Conservatoire National des Arts et Métier's Dicen-IDF research center. She is currently preparing her PhD thesis in Information and Communication on crypto-currencies and Bitcoin. Klara is particularly interested in the sociological and organizational changes generated by the introduction of Bitcoin and other blockchain-based information schemes as alternatives to existing legacy systems, namely for the financial services industry, and in the evolution and transformation of financial and monetary systems. After a first experience as organizational analyst for the Boston Consulting Group, Klara spent several years working as an Asian equity portfolio manager for Edmond de Rothschild Asset Management. She also worked in Cambodia as a consultant for the United Nations (UNCTAD, UNIFEM), the World Bank (International Finance Corporation), and the World Economic Forum. Klara graduated from Audencia Business School and holds a Master’s in organizational sociology from Sciences Po Paris.

Éric STÉPHANY
is Assistant Professor at IAE School of Management and MRM (Montpellier Research in Management) – University of Montpellier (France). He is the Dean of IAE School of Management and supervises – with Veronique Bessiere - the Master's degree in Innovation Management. He also co-leads a research programme in Labex Entreprendre. His research interests focus on entrepreneurial finance (venture capital, crowdfunding, Business angels…).
Features

Matthieu SOULÉ is passionate about new technologies and geopolitics. He completed successfully different missions within innovation departments for BNP Paribas Group. He is really curious about international innovation ecosystems especially India where he has been studying at Bangalore and Silicon Valley where he has been working for L'Atelier US. Last but not least, Matthieu has been involved in Youth Diplomacy (youth think-tank) for the last two years and is currently International Relations & New Technologies program director.

Hao YI joined IDATE as a consultant in 2015. Her assignments focus on both technical and business research of emerging technologies, particularly 3D printing and innovation in the medical and healthcare sectors. She also works on research for mobile communication services and M2M segments such as connected cars. Prior to this, Hao worked as a strategic analyst for Orange where her main areas of endeavour were the indoor geolocation market, mobile payment and digital interaction. She also became a qualified expert in medical devices certification at the Beijing Centre for Medical Device Quality Supervision and Testing of State Food and Drug Administration. Hao holds a master degree in ICT Business Management from TELECOM Ecole de Management, and a Bachelor of Engineering degree from Beijing University of Posts and Telecommunications in China.
h.yi@idate.org



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