Crowdfunding: disintermediated investment banking

This paper introduces crowdfunding as a concept and model for the evolution of investment banking. Crowdfunding, an application of crowdsourcing, is defined as one party’s attempt to finance a project by offering three types of investment opportunities to potential investors. The investment opportunities are donations, passive investments, and active investments. From this foundation I develop a model in which interdependent agents operate in a dynamic, discrete setting. Potential investors decide whether or not to invest in one of three opportunities each period while the entrepreneur sets the parameters of the game to maximize the probability of successful financing. I then simulate the model to analyze the effects changes in key parameters have on the results of the game.crowdfunding, crowdsourcing, network, finance, banking, relationship, evolution, investment, commercial, customer, participation

Estimating Early Fundraising Performance of Innovations via Graph-based Market Environment Model

Well begun is half done. In the crowdfunding market, the early fundraising performance of the project is a concerned issue for both creators and platforms. However, estimating the early fundraising performance before the project published is very challenging and still under-explored. To that end, in this paper, we present a focused study on this important problem in a market modeling view. Specifically, we propose a Graph-based Market Environment model (GME) for estimating the early fundraising performance of the target project by exploiting the market environment. In addition, we discriminatively model the market competition and market evolution by designing two graph-based neural network architectures and incorporating them into the joint optimization stage. Finally, we conduct extensive experiments on the real-world crowdfunding data collected from Indiegogo.com. The experimental results clearly demonstrate the effectiveness of our proposed model for modeling and estimating the early fundraising performance of the target project

Innovative online platforms: Research opportunities

Economic growth in many countries is increasingly driven by successful startups that operate as online platforms. These success stories have motivated us to define and classify various online platforms according to their business models. This study discusses strategic and operational issues arising from five types of online platforms (resource sharing, matching, crowdsourcing, review, and crowdfunding) and presents some research opportunities for operations management scholars to explore

Competition in financial services

In the financial services sector, the failure of a single institution can have a compounding effect on the sector, and on national and global economies. In particular, there is systemic risk from inter-institution lending, and this effect is more complex in Australia due to the small number of major players. In retail banking in Australia, following a similar practice in most developed countries, if an unsecured creditor is a retail depositor, their deposit is insured by the government. That is, if a retail bank fails, the Federal Government will make the depositors whole. The regulatory system, particularly the prudential regulatory system, is designed to protect depositors’ and borrowers’ interests, and this protects the interest of the government. The effect is that regulatory policy on banking has prioritised stability in consideration of the sovereign risk associated with the risk of retail bank failure. However, this approach also creates a policy dilemma. The dilemma concerns the extent to which the retail banking sector can attain the benefits of the vigorous rivalry from effective and efficient competition, without unduly risking stability and the potential of a devastating call on the public purse. Specifically, in the context of effective and efficient competition, there is limited competitiveness in retail banking in Australia. This is reflected in the static state of market share between the four major banks, and very slow and marginal improvements gains even by strong second tier competitors. Furthermore, the retail banking sector’s capacity for product and service innovation is limited. Although the absence of vigorous rivalry is conducive to stability within the retail banking sector, it is likely to detract from the welfare of retail banking consumers. Furthermore, the level of innovation may not be as high as is feasible and barriers, including prudential regulatory barriers to entry or expansion, mean that the extent of rivalry is unlikely to change without some form of promotion of competition. The paper consequently makes a four-point recommendation for the removal of the ‘four pillars’ policy:  The four major banks are protected by an implicit government guarantee that impacts market operation with little observable benefit to consumers, and may be a source of consumer disutility.  The four pillars policy has prompted increased vertical integration within the sector, particularly in the area of mortgage products.  There are sufficient merger protections provided by Part IV of the Competition and Consumer Act 2010 (Cth).  Competition and contestability arise when there are reasonably low barriers to entry and exit from the sector. It is not clear that low barriers to entry exist in Australia, and evidence to support this view comes from the failure of international banks to gain a significant toehold in the retail banking sector in Australia. One deterrent to entry is the regulatory focus on the four pillars. The authors recognise that this position is at odds with the view of the Financial System Inquiry. However, the rationale in the report of the Inquiry was to prevent mergers, and the current competition law achieves this objective. The paper recommends two specific policies to promote competition in retail banking without the structural intervention that would otherwise be required to improve the intensity of competition in the retail banking sector:  Introduce bank account number portability. This would use ‘know your customer’ and central database systems in a similar form to those that have been used for mobile number portability in Australia for the last decade and a half.  Introduce customer access to data held by banks to allow third parties to compare bank offerings across all banks.  Significantly, these two recommendations are consistent with the productivity proposals issued by the UK Government in July 2015. The research paper also examines crowd equity funding as a disruptive force in the banking sector, and recommends that crowd equity funding be permitted with the following safeguards:  ASIC should take an active role in monitoring crowd equity funding and be willing to sue in case of fraudulent action.  Any intermediary online platform should have a financial services licence with limited duty of care.  There should be a cap for business raisings through crowd equity funding of $2 million in a 12-month period.  Crowd equity funding is a social phenomenon. Through its use of social media, it has attracted people who have previously never been interested in investing in companies. Instead of being feared, this interest should be nurtured through the promotion of investors’ financial education

Mutually Exciting Point Processes for Crowdfunding Platform Dynamics

Crowdfunding is a powerful tool for individuals or organizations seeking financial support from a vast audience. Despite widespread adoption, managers often lack information about dynamics of their platforms. Hawkes processes have been used to represent self-exciting behavior in a wide variety of empirical fields, but have not been applied to crowdfunding platforms in a way that could help managers understand the dynamics of users' engagement with the platform. In this paper, we extend the Hawkes process to capture important features of crowdfunding platform contributions and apply the model to analyze data from two donation-based platforms. For each user-item pair, the continuous-time conditional intensity is modeled as the superposition of a self-exciting baseline rate and a mutual excitation by preferential attachment, both depending on prior user engagement, and attenuated by a power law decay of user interest. The model is thus structured around two time-varying features -- contribution count and item popularity. We estimate parameters that govern the dynamics of contributions from 2,000 items and 164,000 users over several years. We identify a bottleneck in the user contribution pipeline, measure the force of item popularity, and characterize the decline in user interest over time. A contagion effect is introduced to assess the effect of item popularity on contribution rates. This mechanistic model lays the groundwork for enhanced crowdfunding platform monitoring based on evaluation of counterfactual scenarios and formulation of dynamics-aware recommendations

Financial Innovation and Sustainable Development in Selected Countries in West Africa

Financial innovation has given a new trend to modern financial system and its importance has been widely recognized. This study investigated the effect of financial innovation augmented with bank competition on sustainable development in eight West African countries. Data were sourced from World Bank development indicators from years 2000-2013. We used two proxies of competitions, two proxies of financial innovations and regressed them on a growth indicator as well as development indicator with other control variables. Using panel data estimations, our results confirmed that an increase in banking efficiency driven by competition and financial innovation would improve economic growth and development. While the two proxies of competition were significant, the financial innovations were not significant; one displayed a negative, while the other exhibited a positive relationship with development. These results revealed the differential effects of different financial innovations adopted in the financial system. That is, the growth effect of financial innovation is sensitive to the choice of proxy. A reduction in demand for money caused by financial innovations could deter economic growth and development. This is because individuals would move away from more liquid assets to less liquid assets. On the other hand, financial innovations could potentially lead to an increase in money demand if payment systems improve and individual’s demand for more liquid assets is channeled to productive sectors. We therefore concluded that policies which would drive competition and efficiency in the banking industry as well as financial innovation should be introduced to ensure effective functioning of the financial system.Innowacje finansowe są nieodzownym elementem współczesnego systemu finansowego. Badania zaprezentowane w artykule dotyczą znaczenia innowacji finansowych dla konkurencji bankowej oraz ich wpływu na zrównoważony rozwój w ośmiu krajach Afryki Zachodniej i zostały oparte na wskaźnikach rozwoju opracowanych przez Bank Światowy z lat 2000-2013. W badaniach jako zmienne objaśniane wykorzystano wskaźnik wzrostu jak i rozwoju, a wśród zmiennych objaśniających znalazły się mię- dzy innymi dwie zmienne opisujące konkurencyjność, dwie zmiennie określające innowacje finansowe. Na podstawie analizy danych panelowych stwierdzono, że wzrost efektywności w systemie bankowym wywołany przez konkurencję i innowacje finansowe przyczynia się do wzrostu gospodarczego i rozwoju. W modelach dwie zmienne objaśniające w zakresie konkurencyjności okazały się statystycznie istotne, natomiast zmienne w zakresie innowacji finansowych nie były istotne – jedna wykazywała negatywny, podczas gdy druga pozytywny wpływ na wskaźniki rozwoju. Badania ujawniły zróżnicowane efekty innowacji finansowych zaadaptowanych w systemach finansowych, co oznacza, że efekt wzrostu wywołany przez innowacje finansowe jest wraż- liwy na dobór zmiennej objaśniającej. Zmniejszenie popytu na pieniądz wywołane innowacjami finansowymi może spowolnić wzrost gospodarczy i rozwój. Wynika to z faktu, że osoby fizyczne mogą konwertować swoje aktywa z bardziej płynnych na mniej płynne. Z drugiej strony innowacje finansowe mogą potencjalnie wpłynąć na wzrost popytu na pieniądz jeżeli system płatności zostanie usprawniony i indywidualny popyt na bardziej płynne aktywa zostanie przeniesiony na sektor produkcyjny. W związku z tym stwierdza się, że w celu zapewnienia funkcjonowania efektywnego systemu finansowego polityka powinna pobudzać konkurencję i efektywność w systemie bankowym jak i innowacje finansowe

Quantifying Learning and Competition among Crowdfunding Projects: Metrics and a Predictive Model

The performance of a crowdfunding project is highly situational-dependent. In this study, we quantify the interactions between crowdfunding projects in order to understand how these interactions can help predict the performance of crowdfunding campaigns. Specifically, we utilize Natural Language Processing (NLP) techniques to create a semi-automated system to label the associated product for each crowdfunding campaign. We also propose three sets of metrics to measure how crowdfunding projects learn from and compete with each other. Finally, we propose a machine learning model and demonstrate that the proposed metrics and the proposed model outperform other combinations when predicting the performance of crowdfunding projects

Fintech report: an overview of the Iberian fintech market

The FinTech industry is quite dynamic and it has progressed beyond its early stages rapidly. FinTech can be defined as “organizations that combine innovative business models and technology to enable, enhance and disrupt financial services” (Hwa, 2019). This Work Project aims to analyse Portuguese and Spanish FinTechs and combine the findings in a comprehensive report of the Iberian FinTech ecosystem. This paper explains how that report was built and it is organized in four main parts: literature review, methodology, results and personal reflection. Additionally, limitations and recommendations for further research are presented in the end of the paper