FINTECH DEVELOPMENT TOWARDS CROWDFUNDING AND BLOCKCHAIN IN THE ERA OF DISRUPTION 4.0

FINTECH DEVELOPMENT TOWARDS CROWDFUNDING AND

BLOCKCHAIN IN THE ERA OF DISRUPTION 4.0

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Introduction

Financial technology, or FinTech, refers to the use of technology to deliver financial

solutions. The term FinTech can be traced back to the early 1990s however, it is only

recently that the sector has caught the attention of regulators, industry players, consumers,

and academics due to its rapid changes to traditional financial services [1]. Two Financial

institutions accept the disruptive nature of FinTech, and the academic community needs to

be informed about the significance of this revolution, to reconsider the role of financial

intermediation, and make a contribution to the birth of a new era for the financial industry

[2]. Although the term FinTech is relatively new, financial innovation has a long history. It

is widely accepted that technology has always played a key role in the financial sector, but it

is very difficult to characterize the FinTech movement. For example, in the paper `150 years

of FinTech`, Arner et al. (2018) describe the evolution of FinTech through three major eras:

FinTech 1.0 (1866-1967); FinTech 2.0 (1967-2008); and FinTech 3.0 (2008-present). The

authors argue that the advent of the first transatlantic cable in 1866 enabled the initial

combination of finance and technology, culminating in the first period of financial

globalization[3].

Driven by smartphones and application programming interfaces (APIs) and further catalyzed

by the 2008 global financial crisis (GFC), we are currently at stage 3.0 of FinTech in

developed countries and FinTech 3.5 in emerging markets. The paper further argues that an

important difference in FinTech 3.0 lies in who provides financial services and the speed of

development. Examples in FinTech 3.0 are Wealthfront in 2008, which provides online

automated investment services; Kickstarter in 2009, which introduced a rewards-based

crowdfunding platform; and Bitcoin in 2009, which aims to reform mobile payment

solutions. In emerging markets in Asia and Africa, examples of FinTech 3.5 are mobile

money like M-Pesa in Kenya in 2007, SME lending like Alipay in China in 2010 and new

payment banks like Fino PayTech in India[4].

In conducting this research, there are several previous studies that are aligned, so that this

research can be carried out properly. The first research examines the evolution of FinTech in

three major eras. While the term FinTech is relatively new, financial innovation has a long

history. It is widely accepted that technology has always played a key role in the financial

sector, but there is a gap, namely, it is very difficult to characterize the FinTech movement

[5]. The second study examined the role of banking in United States economic activities.

The large role of banking in economic activities must be supported by strong regulations [6].

The third study, examining the role of financial intermediation in FinTech, the study still has

gaps in financial intermediation in FinTech [7]. The fourth study, examining the role of

FinTech as financial services such as Crowdfunding, mobile payments, and money transfer

services led to the development of start-up businesses [8]. The fifth study examines the

phenomenon of crowdfunding development in United States. United States people,

especially in urban communities, still do not make the most of it because there is still a lack

of knowledge literacy related to crowdfunding as an alternative funding which causes a gap

in the number of United States crowdfunding compared to other Asian countries, namely

India and Malaysia, which are quite competitive [9]. The sixth study, examining financial

technology, FinTech generally aims to attract consumers by providing products and

providing services that are more user friendly, efficient and transparent, but the gap is very

wide, especially with the older generation. The seventh research (7) examines Financial

Technology: A Systematic Mapping Study, the lack of gap identification in the research.

Today Fintech has become one of the 'hot' areas in the financial industry, social media, and

academic research, but our understanding of its applications and implications is rather

limited.

Research Methodology

Mapping FinTech in Economic and Financial Research

This review uses bibliographic mapping. This is a well-established approach to reviewing

influential areas of research and publications. Data collection and analysis followed the used

by Jansen et al. and Jansen. The first step was to compile a comprehensive dataset of

relevant publications and their citation records (i.e., complete records of cited references).

Then the citation data is cleaned. HistCiteTM can then be used to analyze and correlate the

data to map the relationships between publications and visualize the results in

communication software[10].

Articles included in this review were identified by a Boolean search of the Social Science

Citation Index, an online scientific citation database within the Clarivate Analytics Web of

ScienceTM platform. In this database, we first searched for publications containing the term

"FinTech*" in the title, abstract, or keywords[11]. An asterisk (*) was included as a

wildcard symbol to search for variations of the term. The search identified 111 records, 43

of which were classified as corporate finance, business, or economics. Of the remaining 68

datasets, more than 85% were assigned to the "computer science" domain. These 43 articles

have been reviewed to provide a general insight into FinTech. As the term FinTech itself is

relatively new, we continued to expand our research to include Crowdfunding and

Blockchain, major FinTech innovations in the last decade. An advanced search was then

conducted that included the terms "FinTech*," "Crowdfunding," "Peer-to-Peer-Lend*,"

"P2P-Lend*," or "Blockchain*." This search was further refined in the Business

Administration/Economics/Financial Economics field of study. The advanced search

identified 421 additional records[12]. The 421 records were downloaded and imported into

HistCiteTM. Records were then manually sanitized by reviewing each record's title, abstract,

and keywords, and where appropriate, referring to the full text of the publication to

determine its eligibility for inclusion in the review. For example Cameron, included the

keyword 'crowdfunding', but this paper examines the impact of digital technologies on music

consumption. ScienceTM website: (1) Ge et al.`s article, Two articles that met the selection

criteria were also removed from the data as they were not accessible from their titles.

"Personal Trust or Reputation Sharing: Overcoming Information Asymmetry in Online P2P

Lending Markets; (2) The paper by Hu et al. , 23 records were removed, leaving a total of

398 records in the data set.

The scope of this review is limited to crowdfunding and Blockchain.[13] Mobile money and

artificial intelligence applications such as robot-advisory emerging over the past 10 years are

not included in the scope of this review. Mobile payments are growing rapidly in emerging

markets in Asia and Africa over the past decade and have attracted research attention. A

very brief search shows that and mobile payments research is fragmented and a significant

amount of research focuses on developing countries where mobile payments have grown

rapidly. Given that the financial systems and infrastructure in these countries are less

developed and have different attributes, we excluded mobile payments from the scope of the

review. Artificial intelligence is a broad subject that includes any technique that allows

technology to mimic human intelligence using logic (Altus, 2018)[14]. Artificial intelligence

technology is still in a primitive stage, and the application of artificial intelligence in

financial arrears is not essential. Current business research does not cover artificial

intelligence in detail; therefore, we also exclude it from the scope of this review.

To check if any records were inadvertently missed, a search for cited references was

conducted in HistCiteTM. Omissions may occur when records do not meet the search

criteria. In addition, limiting the search to the field of business and management may have

missed contributions that are not classified by Web of ScienceTM as belonging to this

domain. Four additional publications were manually added to the final dataset (see Table 1).

With the manual additions, the final dataset contained 402 records published between 2012

and 2022 (cutoff date: July 24, 2022, which includes online-first articles published to date).

Furthermore, there are some cross-disciplinary books/magazines related to this review that

were not added in our data as they are not business fields; for example, the book 'Bitcoin and

Cryptocurrency Technologies' published by Princeton University Press in the year provides

a comprehensive introduction to the Blockchain revolution, but is categorized under the field

of computer science[15]. The annual research output on FinTech in Economics and Finance

is mapped in Figure 1. The field attracted academic interest in 2014, followed by a rapid

increase in publications, in line with the rapid growth of aggressive investments in the field.

Developments in FinTech Research

This section reviews and discusses the main research streams identified in Figure 2.

Additional streams, although still in their infancy, are also explored for their potential and

future implications.

Crowdfunding

Much of the fintech research has developed around crowdfunding. Crowdfunding is one of

the most successful technology-enabled initiatives in the fintech revolution (see gray area in

Figure 2). crowdfunding can be seen as a proprietary FinTech application that can eliminate

financial intermediaries. crowdfunding is a public offering of funds[17], conducted on an

internet-based crowdfunding platform without going through a standard financial

intermediary. crowdfunding differs in terms of fundraising activities and what is offered in

return for the funds. Belleflame et al. categorize crowdfunding into two classes: (i)

investment-based crowdfunding and (ii) reward and contribution-based crowdfunding. The

first class includes equity, loyalty, and credit-based crowdfunding (such as peer-to-peer

lending), where funders can invest in a campaign and receive financial returns. In the second

tier, no financial rewards are given for supporting such projects, and sponsors may receive

valuable tokens (such as music CDs, t-shirts, or product discounts) in return. This is often

the case. Investment-based crowdfunding has emerged as an alternative financial investment

vehicle. Without the usual financial intermediaries and expensive registration requirements,

crowdfunding allows fundraisers to bypass complicated regulatory requirements and reduce

transaction costs.

Research on crowdfunding first emerged in 2012 and increased rapidly since 2018, driven by

substantial changes of the legislative environment in 2015. Investment-based crowdfunding

has been restricted in many countries, but in recent years, the regulatory environment has

become more supportive of innovation finance. In the United States, The Crowdfund Act of

Jumpstart Our Business Startups (JOBS) Act in 2015 is considered a milestone for

crowdfunding as it allowed equity-based crowdfunding to serve as a legal alternative for

entrepreneurs and small business owners to sell equity through social networks and various

Internet platforms[18].

Early research on crowdfunding focused on the definition of crowdfunding. Schwienbacher

and Larralde offered one of the first descriptions of crowdfunding in their research on

French music crowdfunding start-ups. Lambert and Schwienbacher (2018) define

crowdfunding as 'an open call for the provision of financial resources either in the form of

donations or in exchange for some form of rewards and/or voting rights to support an

initiative for a specific purpose'. Mollick provides a different view, defines crowdfunding in

the context of entrepreneurship as 'the efforts of entrepreneurial individuals and groups -

cultural, social, and non-profit - to fund their ventures by leveraging relatively small

contributions from a large number of individuals using the internet, without standard

financial intermediaries'. This definition addresses one of the key features of crowdfunding,

namely its attempt to disrupt standard financial intermediation.

Following previous attempts to define crowdfunding, Belleflamme et al. contribute to the

literature by describing the crowdfunding sector based on descriptive statistics of the

existing crowdfunding platform market. This paper provides a better understanding of the

functioning of crowdfunding platforms (CFPs). It also addresses the issue of asymmetric

information of CFPs, dynamic behavior of funders, and the role of social networks in CFPs,

stimulating future research to examine these issues[19].

Since 2012, large-scale studies have begun to examine the determinants of success of equity-

based and credit-based crowdfunding campaigns, with mixed results. These studies are

largely empirical and build on existing finance theories. In the context of credit-based

crowdfunding (peer-to-peer lending), Duarte et al. pioneered the use of peer-to- peer lending

sites to investigate trust issues and found that borrowers who appear more trustworthy are

more likely to receive loans. Michels further noted that unverifiable disclosures impact peer-

to-peer lending[20]. Mollick, the most cited article on crowdfunding in the context of equity-

based crowdfunding, describes the dynamics underlying success and failure in crowdfunding

ventures. Over $237 million. The paper finds that personal networks and underlying project

quality are related to the success of crowdfunding efforts, and that geography is related to

the nature of successful projects and fundraising. suggest. Based on signaling theory, Ahlers

et al. empirically tested the effectiveness of signaling to persuade investors to use funds in

equity crowdfunding. According to their research, accepting equity and providing more

detailed information about risks can be interpreted as strong signals, which can greatly affect

your chances of successfully raising funds. Social capital and intellectual capital, on the

other hand, have little impact on fundraising success. Colombo et al. also examined the

impact of social capital on the success of equity crowdfunding campaigns, but reached

different conclusions. Ge et al. conducted a similar study in the context of credit-based

crowdfunding (peer-to-peer (P2P) lending) and found that borrowers' social information not

only helps in credit evaluation, but also reduces arrears and debts, suggesting that it is also

useful. Can be used for collections.

To date, most crowdfunding research is empirical and based on existing financial theories.

Considering the fundraising perspective, signaling theory is widely used to examine whether

and how communication between fundraisers and funders determines the success of

crowdfunding campaigns. Research considering the funder (investor) perspective focuses on

herding behavior. These studies provide important insights into crowdfunding in the areas of

dynamic behavior among funders and the role of social networks on crowdfunding

platforms. A prominent research gap is that although one of the key features of

crowdfunding is the provision of an alternative way to move money peer-to-peer without

financial intermediaries, no study has yet examined how and to what extent this key feature

actually differentiates crowdfunding from traditional funding channels. The changing

financial landscape following the 2008 financial crisis has created a crowdfunding culture.

The amount of money raised through crowdfunding worldwide is increasing year on year.

The amount of funds raised has increased from US$1.5 billion in 2011 to over US$100

billion in 2015 and over US$300 billion worldwide in 2016 (Massolution 2015; and Allied

Crowds 2016; see Garvey et al. 2017). Credit-based crowdfunding is now mainstream

crowdfunding. Although equity crowdfunding is relatively small, it has experienced

dramatic growth in recent years (Allied Crowds 2016). The current volume of crowdfunding

is still low compared to the size of the global financial services sector, and is not seen as a

threat to traditional means of financing. However, given the rapid growth of this alternative

finance, estimating how crowdfunding will affect traditional funding channels in dollar

amounts in the medium and long term will also be a potential future work.

Blockchain

Crowdfunding research is the only stream in FinTech that shows a clear (though not strong)

correlation. All other FinTech research streams are highly fragmented, with little interaction

at local and global levels. Blockchain is still in its infancy in fragmented fintech research,

but is emerging as a stream worthy of further investigation[21]. Blockchain is said to have

the potential to disrupt the functioning of the global financial system and change the nature

of investments. The first blockchain was conceived in 2008 by a person (or group of people)

named Satoshi Nakamoto In January 2009, the concept was implemented as a core

component of the Bitcoin cryptocurrency. By using Blockchain, Bitcoin became the first

digital currency that does not require a trusted authority.

Proposals for peer-to-peer networks that transfer value between participants are not limited

to Blockchain. Crowdfunding is an existing fintech innovation that enables peer-to-peer

money exchange without intermediaries, as discussed in the previous session. However,

Bitcoin is a unique way to move value. As Fanning and Centers [22] explain, Bitcoin

transaction information is permanently recorded in blocks and appended to previous

transaction information (thus forming the Blockchain). The Blockchain allows users to

verify and track Bitcoin transactions, and the information stored in blocks acts as an element

of trust. Therefore, Blockchain effectively cuts off the need for a centralized agent, which is

usually provided by financial intermediaries. This element of trust inherent to Blockchain is

a key reason that Blockchain technology has the potential to be a transformative technology

in financial services; in some areas, it may eliminate the need for intermediaries[23].

Now let's assume one person named Tom wants to transfer value ($50,000 equivalent) to his

friend Jerry.7 Let's compare the trust element inherent in traditional payment mechanisms

and Bitcoin. In the traditional mechanism, Tom needs to transfer the value through a bank to

Jerry, and therefore the bank will record and verify this transaction. In the Bitcoin

mechanism, Tom needs to broadcast this transaction to all Bitcoin nodes that comprise the

peer-to-peer network (Jerry does not need to be on the Bitcoin network to receive this value)

and the majority of nodes must agree on the transaction between Tom and Jerry. All

previous Bitcoin transactions are now recorded in the form of a block hash (public ledger).

When the network receives Tom's transaction, the new transaction is added to the ledger as a

new hash in the block. So, while traditional bank validation is done by a centralized

authority with a designated authority, decentralized node agreements and ledgers facilitate

Bitcoin validation.

But how can nodes ensure exactly how consensus was reached on Tom's transaction, and

that the transaction information has been added correctly? Bitcoin's decentralization

mechanism is a combination of technical methods and incentive techniques. Technically

aware, Bitcoin has mathematical algorithms and cryptographic protection against invalid

transactions. In the case of Tom in the context of Bitcoin, there is a publicly accessible

ledger that contains the transactions that are in blocks. If many nodes agree, Tom's

transaction information is cryptographically added (a new hash) to the existing ledger. If

anyone wants to change Tom's transaction, this means the hash will change, which will then

invalidate the entire block as each one also contains the hash of the previous block.

Therefore, one incorrect hash in the chain will cause all future hashes to be invalid. The

cryptographic mechanism itself does not solve the decentralization problem because even if

it becomes clear to the entire network that there is an invalid hash attack, whether it is added

in the Blockchain (ledger) purely depends on the honesty of the nodes; that is, an invalid

hash will be rejected by the nodes/network simply because the majority of nodes are honest

and will not include the invalid transaction in the Blockchain. Bitcoin `solves` this honesty

problem by incentivizing nodes to behave honestly and use a proof-of-work (PoW)

mechanism. Honest nodes (which create blocks that end up in the long-term consensus

chain) will be rewarded with Bitcoin (block rewards) and transaction fees[24]. However,

incentives alone are not enough to ensure node integrity. The Bitcoin protocol also has a

built-in proof-of-work function using hash puzzles. The Bitcoin PoW feature has three

characteristics. First, hash puzzles are difficult to solve, requiring computation beyond the

reach of ordinary laptops. This process of repeatedly trying to solve hash puzzles is called

Bitcoin mining, and the nodes involved are called miners. Second, the cost for miners to find

blocks can be parameterized and recalibrated as the mining ecosystem grows. Therefore,

when weighed by miner effort, incentives, and hash power, the majority of miners follow the

Bitcoin protocol. In other words, trade honestly. Third, by assembling the hash puzzle9, it is

easy to verify that a node has calculated its proof of work correctly. A block discovered by

another miner satisfies this proof-of-work property.

Results And Discussion

Innovative payment services like PayPal didn't get much attention from the financial world a

decade ago. All aspects of financial services today are influenced by technological factors.

Similar to Philippon (2016)[25], we believe FinTech innovations have the power to upend

established financial industry institutions and blur industry boundaries. A key factor is that

some fintech technologies can help financial services move away from intermediaries. To

shed light on the upcoming fintech revolution, this literature review examines two of its key

innovations, crowdfunding and Blockchain, which aim to disrupt financial processes and

eliminate intermediaries. increase[26].

Mediation is a fundamental part of finance. B. Asset Aggregation, Market Making, Risk

Management, and Information Clearing [27]. For more than 100 years, we have shared the

view that traditional financial intermediaries perform key financial functions and generate

efficiency. Without bankers, most individuals and businesses have to bear higher transaction

costs. New technologies and regulatory reforms have transformed the financial industry in

recent years[28]. For a long time, the purpose of financial intermediation was to reduce costs

and risks. However, the 2007/2009 financial crisis severely damaged the brand image of

traditional financial intermediaries, especially banks. Nowadays, more and more people are

bypassing traditional financial markets to cut costs, deregulate, and improve efficiency.

Driven by technological developments and new regulatory initiatives, many clients of the

financial services sector are changing their minds about who has the resources and

legitimacy to provide financial services, and are seeking financial intermediation that

supports FinTech innovations. questioning the role of crowdfunding Research review shows

that this fintech innovation does not negate the need for financial intermediaries. Rather, it

creates alternatives to traditional intermediaries. Current crowdfunding research uses an

empirical approach to focus on the determinants of crowdfunding success and the dynamic

behavior of investors. Results support existing theories derived by legacy traditional

intermediaries and therefore do not contradict these theories. Crowdfunding is considered an

alternative financial investment vehicle that does not go through standard financial

intermediaries, but this key feature of crowdfunding makes this fintech innovation

fundamentally different. There is a lack of sufficient research to know how to do so[29].

Crowdfunding platforms do not eliminate intermediaries. Instead, these platforms are seen as

new, loosely regulated intermediaries. In practice, traditional banks provide loans to

borrowers and platforms provide notes to lenders. The investment bank then creates a

platform for fundraising to raise funds from potential donors/investors. So the basics of

these peer-to-peer platforms and traditional bank intermediaries are almost the same, if not

the same[30].

One of the main advantages of crowdfunding compared to traditional banks is fewer

regulatory requirements and lower transaction costs. However, this is based on an ex-ante

perspective, as there are no post-mortem investigations to find out whether this trust Correct.

Although crowdfunding platforms can slightly reduce transaction costs, it does not mean

that crowdfunding platforms are a "more efficient" way to raise and redistribute capital

compared to traditional financial intermediaries. Moreover, recent studies on crowdfunding

show the persistence and intrinsic nature of the asymmetric information problem in

crowdfunding platforms. This suggests that crowdsourcing innovations still require

intermediaries. Therefore, although crowdfunding on the surface avoids the use of

conventional financial intermediaries to raise money, the main purpose of financial

intermediation also applies to this FinTech innovation. Crowdfunding platforms act as a new

type of financial intermediary by replacing conventional ones[31].

A fundamental feature of Blockchain technology is that it enables decentralized consensus

building. This changes the conventional wisdom that says the legitimacy of transactions

should be determined by a centralized and reliable third party. Historically, the primary

function of banks has been in this regard (traditional financial intermediaries). Blockchain

can eliminate bank middlemen by providing trust in a decentralized way. However, this does

not mean that this new technology will eliminate traditional intermediaries, as building

systematic trust in transactions is not their only role. On the other hand, Blockchain can also

be used by banks to (i) reinvent processes and (ii) reinvent the products they offer.

Blockchain could eliminate the need for arbitration in some areas, bringing in new forms of

arbitration while reducing the layers of traditional arbitration.

Conclusions

This analysis and discussion aims to provide readers with a broader knowledge of FinTech

and how it affects the financial sector. The nature of FinTech and its effects call for more

interdisciplinary studies that combine technology, economics, and psychology to delve into

unsolved mysteries. Current research is scattered and unsystematic. FinTech encompasses

digital innovations and technology-enabled business model innovations in finance. The

scope of this review is limited to crowdfunding and Blockchain only. Conversely, FinTech

innovations not covered in this paper are also (possibly) disrupting financial intermediation.

Mobile payments is an innovation that is not included in the review, but is disrupting the

traditional role of banks in the payment process, especially in emerging markets. Mobile

payments are e-wallet services that allow users to store, send and receive money using their

mobile phones, providing a gateway to financial inclusion. It is already popular in Asia (e.g.,

Japan, Korea and China) and parts of Africa (e.g., Kenya, Tanzania and Uganda). The latest

GSMA report, 'The 2017 State of the Industry Mobile Money Report', shows that in 2017,

the mobile payments industry processed US$1 billion dollars worth of transactions per day,

directly generating over US$2.4 billion in revenue. Mobile money is achieving worldwide

scale, and it is affecting the ability of traditional banks to generate revenue through credit

and debit cards. Research on mobile money is fragmented but points to the potentially huge

impact on economic outcomes in developing countries and the disruptive nature of this

innovation.

By examining the rapid growth of mobile money in Africa, Aker and Aker and Mbiti

suggest that mobile money systems offer new opportunities for distributing cash transfers

and may affect economic outcomes in developing countries. In addition, using Kenyan data,

Jack and Suri provide empirical evidence that mobile money has a significant impact on risk

sharing due to a reduction in transaction costs (the cost of transferring resources between

individuals). Artificial intelligence (AI), machine learning, and non-covered robo-advisors

are also expected to disrupt financial intermediation. These technologies are the catalysts of

new innovative products emerging in financial markets, and they may form new forms of

financial intermediaries or provide access to direct channels to investors and customers, thus

bypassing traditional intermediaries. Artificial intelligence involves creating machines that

learn on their own using logic. These 'intelligent' machines use machine learning and deep

learning, giving the technology the ability to improve tasks and to perform tasks.

AI enables advanced analytical tools, and this technology is being used and explored in

financial services. For example, insurance providers are using AI to streamline process flows

and fight fraud, some banks are using chatbots to improve customer experience, and some

robo-advisors are using Artificial Intelligence (AI) solutions as part of their digital robot

solutions. In the future, new forms of financial intermediaries may be replaced by AI

agencies and robo-advisors. The needs of traditional banks may change, and some bank

scenarios may be intermediated.

Therefore, a more fundamental area of future research is the role of financial intermediation

and how this role can be changed. As discussed earlier, despite being disrupted by FinTech,

intermediation remains persistent in finance. However, we expect to see both competition

and cooperation among traditional and new intermediaries. We need to examine and explain

this phenomenon to provide guidance to all participants such as: incumbents, new entries

and regulators. An important economic role of intermediation is to resolve the conflicting

preferences of surplus units and deficit units, and thereby encourage savings and productive

capital investment. Intermediators perform various functions such as economies of scale,

risk management, asset aggregation, and information clearing. It is worthwhile to examine

whether, how and to what extent these financial intermediation functions may be affected by

FinTech innovations. For example, in the past, traditional financial intermediation has

gained considerable economies of scale due to the size and volume of business transacted.