THE ROUTLEDGE HANDBOOK OF FINTECH The Routledge Handbook of FinTech offers comprehensive coverage of the opportunities, chal- lenges and future trends of financial technology. This handbook is a unique and in-depth reference work. It is organised in six thematic parts. The first part outlines the development, funding, and the future trends. The second focuses on blockchain technology applications and various aspects of cryptocurrencies. The next covers FinTech in banking. A significant element of FinTech, mobile payments and online lending, is included in the fourth part. The fifth continues with several chapters cov- ering other financial services, while the last discusses ethics and regulatory issues. These six parts represent the most significant and overarching themes of FinTech innovations. This handbook will appeal to students, established researchers seeking a single repository on the subject, as well as policy makers and market professionals seeking convenient access to a one-stop guide. K. Thomas Liaw is a Professor of Finance in the Economics and Finance Department at St. John’s University, New York, USA. THE ROUTLEDGE HANDBOOK OF FINTECH Edited by K. Thomas Liaw First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 selection and editorial matter, K. Thomas Liaw; individual chapters, the contributors The right of K. Thomas Liaw to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Liaw, K. Thomas, editor. Title: The Routledge handbook of fintech / edited by K. Thomas Liaw. Description: Abingdon, Oxon ; New York, NY : Routledge, 2021. | Series: Routledge international handbooks | Includes bibliographical references and index. Identifiers: LCCN 2020048981 (print) | LCCN 2020048982 (ebook) | ISBN 9780367263591 (hardback) | ISBN 9780429292903 (ebook) Subjects: LCSH: Finance—Technological innovations. | Financial services industry—Technological innovations. Classification: LCC HG173 .R684 2021 (print) | LCC HG173 (ebook) | DDC 332—dc23 LC record available at https://lccn.loc.gov/2020048981 LC ebook record available at https://lccn.loc.gov/2020048982 ISBN: 978-0-367-26359-1 (hbk) ISBN: 978-0-367-76008-3 (pbk) ISBN: 978-0-429-29290-3 (ebk) Typeset in Bembo by codeMantra CONTENTS List of figures ix List of tables xi List of contributors xiii PART I FinTech innovations and trends 1 1 FinTech innovations and financial markets: an introduction 3 K. Thomas Liaw 2 FinTech venture capital 11 Douglas J. Cumming and Armin Schwienbacher 3 The future of finance: why regulation matters 38 Mark Fenwick and Erik P.M. Vermeulen 4 Digital currencies: what role in our financial system? 51 Grégory Claeys and Maria Demertzis PART II Blockchain and cryptocurrencies 67 5 Decentralized autonomous risk transfer on the blockchain 69 Alexander Braun, Niklas Haeusle and Stephan Karpischek 6 Distributed ledger technologies and blockchain for FinTech: principles and applications 79 Raghava Rao Mukkamala and Ravi Vatrapu v Contents 7 Initial coin offerings: a statistical analysis of the main characteristics 99 Paola Cerchiello and Anca Mirela Toma 8 Initial coin offerings: a new trend in the market 108 Ana García Rodríguez 9 Price discovery in the Bitcoin futures and cash markets 128 Tatja Karkkainen 10 Trading and regulation of cryptocurrencies, stablecoins and other cryptoassets 147 Anil Savio Kavuri and Alistair Milne 11 Cryptoassets and financial crime: a European Union perspective 163 Robby Houben and Alexander Snyers PART III FinTech in banking 191 12 FinTechs: unbundling and re-bundling in the open industry of banking 193 Anna Omarini 13 Is FinTech a threat or a promise to banks? 216 Krishnan Dandapani, Mohammad Hashemi Joo and Yuka Nishikawa 14 Virtual rush: the race for virtual banks in the Asia-Pacific region 232 Jackson Mueller 15 The restructure of China’s banking industry by artificial intelligence and FinTech 263 Zhuming Chen, Jing Li, Xiangyu Zhang, Xin Li, Jinghong Zeng, Shihan Wang and Weihan Zhang PART IV FinTech in payments and lending 303 16 Consumer payment preferences and the impact of technology and regulation: insights from the Visa Payment Panel Study 305 Tom Akana 17 Meet people where they are: building formal credit using informal financial traditions 322 Tom Akana vi Contents 18 Peer-to-peer lending risk management 336 Arianna Agosto PART V FinTech in other financial services 345 19 Rethinking automated investment adviser disclosure 347 Nicole G. Iannarone 20 Market risk for robot advisory 358 Paolo Pagnottoni and Gloria Polinesi 21 Financial technology in the U.S. Municipal Fixed Income Market 365 Timothy J. Stevens 22 PropTech: the real estate industry in transition 385 Marc Feth PART VI FinTech regulatory issues 393 23 Machine Learning implications for banking regulation 395 Lihong L. McPhail and Joseph E. McPhail 24 Regulating FinTech in Canada and the United States: comparison, challenges and opportunities 416 Ryan Clements 25 Cryptocurrency market reactions to regulatory news 455 Raphael Auer and Stijn Claessens Index 469 vii . Taylor & Francis ( Taylor & Francis Group http://taylorandfrancis.com FIGURES 2.1 Total size of all VC rounds, scaled 2007=0 20 2.2 Number of VC rounds, scaled 2007=0 20 2.3 Number of investment rounds, scaled 2007=0 21 2.4 Annual volume of round investments, scaled 2007=0 21 4.1 A taxonomy of money 53 4.2 Market shares of the 10 most popular cryptocurrencies (market capitalisation, October 2019, in %) 54 5.1 Generic structure of a decentralized autonomous organization 71 5.2 Decentralized insurance on the blockchain 72 9.1 Bitcoin spot and futures market 1-minute frequency 133 12.1 APIs as pivots between products and distribution 200 12.2 Possible scenarios of digital transformation and banks and FinTechs collaboration 202 1 3.1 FinTech impact on banking operations 220 1 3.2 Banks prospects and challenges impacted by FinTech 222 1 3.3 Evolving FinTech possibilities and potentials 223 1 3.4 Disruption in retail banking sectors 225 15.1 Summary of bank technology subsidiary 264 15.2 Service model of Robo-Advisor 269 15.3 The application of AI in bank loans 270 15.4 The role of big data in the bank value chain 273 15.5 Athena platform 281 15.6 BaaS structure 284 15.7 YSA and COI trend 291 15.8 NIR and ROE trend 292 15.9 NIM, NPL and Tobing trend 292 16.1 Overall average monthly spending — by payment methods 308 16.2 Rates of card-based payment ownership and usage (among total) 308 16.3 Rate of card mention in banking solicitations 313 16.4 Index of average number of credit card accounts on file by consumer age 314 16.5 Payment method share of transactions by age range 315 ix