Financial technology and the future of banking

This paper presents an analytical framework that describes the business model of banks.It draws on the classical theory of banking and the literature on digital transformation.It provides an explanation for existing trends and,by extending the theory of the banking firm,it illustrates how financial intermediation will be impacted by innovative financial technology applications.It further reviews the options that established banks will have to consider in order to mitigate the threat to their profitability.Deposit taking and lending are considered in the context of the challenge made from shadow banking and the all-digital banks.The paper contributes to an understanding of the future of banking,providing a framework for scholarly empirical investigation.In the discussion,four possible strategies are proposed for market participants,(1)customer retention,(2)customer acquisition,(3)banking as a service and(4)social media payment platforms.It is concluded that,in an increasingly digital world,trust will remain at the core of banking.That said,liquidity transformation will still have an important role to play.The nature of banking and financial services,however,will change dramatically.

What explains the technical efficiency of banks in Tunisia?Evidence from a two‑stage data envelopment analysis

In this study we examine the potential determinants of technical efficiency for the Tunisian commercial banking sector over the period of 1995–2017.First,we estimate banking technical efficiency with a radial and non-radial bootstrap data envelopment analysis.For the radial technique,we use an input-oriented approach and for non-radial we use the Range Adjusted Measure(RAM).Second,we use a double bootstrapping regression technique to estimate the influence of a set of eventual determinants on technical efficiency.Finally,based on all possible regressions,we gauge the overall effect of each determinant.Our results reveal that the input-oriented and RAM approach gave somewhat similar results.We found that the return on equity,the expense to income ratio,the loan to deposit ratio,and the growth rate are insignificant to Tunisian banking technical efficiency.In particular,banking technical efficiency increases with capitalization and inflation,whereas,it decreases with size,number of bank branches,management to staff ratio,and loan to asset ratio.In addition,we identified evidence supporting the moderate success of the last decade of reforms and a noticeable one for the post-revolution reforms in helping improve banking technical efficiency.The post-revolution reforms,largely revolving around reinforcing the rules of good governance and banking supervision,coupled with the restructuring of public banks,were found to be insufficient to raise overall banking technical efficiency despite improvement in the technical efficiency of private banks.

Financial sector development and economic growth:evidence from Cameroon

For decades,African economies have embarked on financial sector reforms.However,the empirical implications of these reforms have been divergent.This paper investigates the impact of financial development on Economic growth using time series data in Cameroon.This investigation was carried out using three common indicators of financial development(broad money,deposit/GDP and domestic credit to private sector).Using the Auto Regressive Distributive Lag(ARDL)technique of estimation,it was discovered that there exist a short-run positive relationship between monetary mass(M2),government expenditure and economic growth,a short run negative relationship between bank deposits,private investment and economic growth equally exists.However in the long run,all indicators of financial development show a positive and significant impact on economic growth.This paper thus confirms the existence of a positive and long-term impact of all the indicators of financial development on economic growth through bound test.It is therefore proposed that the financial reforms in Cameroon should be pushed forward in order to boost the development of the financial sector thus an increase in its role on economic growth.

Default or profit scoring credit systems?Evidence from European and US peer-to-peer lending markets

For the emerging peer-to-peer(P2P)lending markets to survive,they need to employ credit-risk management practices such that an investor base is profitable in the long run.Traditionally,credit-risk management relies on credit scoring that predicts loans’probability of default.In this paper,we use a profit scoring approach that is based on modeling the annualized adjusted internal rate of returns of loans.To validate our profit scoring models with traditional credit scoring models,we use data from a European P2P lending market,Bondora,and also a random sample of loans from the Lending Club P2P lending market.We compare the out-of-sample accuracy and profitability of the credit and profit scoring models within several classes of statistical and machine learning models including the following:logistic and linear regression,lasso,ridge,elastic net,random forest,and neural networks.We found that our approach outperforms standard credit scoring models for Lending Club and Bondora loans.More specifically,as opposed to credit scoring models,returns across all loans are 24.0%(Bondora)and 15.5%(Lending Club)higher,whereas accuracy is 6.7%(Bondora)and 3.1%(Lending Club)higher for the proposed profit scoring models.Moreover,our results are not driven by manual selection as profit scoring models suggest investing in more loans.Finally,even if we consider data sampling bias,we found that the set of superior models consists almost exclusively of profit scoring models.Thus,our results contribute to the literature by suggesting a paradigm shift in modeling credit-risk in the P2P market to prefer profit as opposed to credit-risk scoring models.

Impact of Financial Intermediation on Economic Growth of Nigeria(1995-2014)

The problems of lack of efficiency and effectiveness of mobilizing resources lead to unemployment,instability,and underdevelopment of the Nigeria economy.Financial intermediation as a financial system aims at the enhancement of mobilization of funds by pooling individuals savings and increasing the proportion of societal resources devoted to interest—yielding assets and long-term investments,which in turn facilitates economic growth.This study is aimed at accessing the impact of financial intermediation on economic development in Nigeria by using the endogenous components of financial intermediation,such as demand deposits(DD),time/savings deposits(T/Sav),and credits(loans and overdraft),our independent variables as explanatory variables to predict the outcome of our dependent variable output(GDP)secondary data from the CBN(Central Bank of Nigeria)Statistical Bulletin of various issues.The study covers an eight-year period(1995-2014).Parametric statistics in forms of analysis of variance(ANOVA),mean,standard deviation,t-test,co-efficient of correlation,and simple linear regression were used to analyze the data.The findings suggest that though there exists a positive growth relationship between financial intermediation and output in Nigeria,there also exist elements of negative short-run growth relationship,especially for the periods that suffered financial shocks resulting from the global financial crisis and perhaps numerous bank failures.Recommendation states that this finding may serve to buttress existing research outcomes and will be relevant to regulatory authorities in formulating policies that are capable of positively enhancing financial intermediation and output growth in the economy.

Insensitivity to Unethical Behavior in Dictator Game When Indirectly Intermediated-Implications of Indirect Blindness for Safety Management

The aim of this study was to demonstrate that indirect mediation in behaviors leads to insensitivity to unethical behavior through a dictator game and to give some implications for safety management. The indirect involvement in the unethical behavior such as the violation of regulation is believed to lessen the responsibility and the criticism from others for the unethical behavior as compared to the direct involvement in it. The instruction condition for the evaluator of behavior in a dictator game was taken up as an experimental variable. Instruction condition 1 was to pay attention to the behavior of only a dictator. In instruction condition 2, the participant (evaluator) was required to review all players’ behavior and evaluate a dictator. It has been investigated whether allowing indirect actions (mediations) leads to reduced punishment as a function of the instruction condition. While the punishment to the indirectness did not get smaller for instruction condition 2, the punishment to the indirectness tended to get smaller only for instruction condition 1.

China＇s Achilles Heel： The Banking System

China＇s robust economy is bringing unprecedented growth and prosperity to the country. However, there is ample evidence to suggest that weaknesses in the banking system and the slow progress in reforming those weaknesses may cause disruption to continued economic growth. Bad loan portfolios as well as inadequate capital ratios point to the lack of proper governance and credit cultures at many banks. Unless these issues are quickly and properly addressed, the economic engine that drives the country will be at risk.

Does Financial Intermediation Development Increase Per Capita Income in Rural China?

This paper investigates the impacts of financial intermediary （or banking） development on village-level per capita income using a Chinese dataset for selected years between 1993 and 2006. The empirical results from a random effect regression model indicate that mean per capita income in rural villages follows an inverted U-shaped path as financial intermediation develops. However, using a pooled quantile regression approach, we find that median per capita income in rural villages follows a positive linear path, rather than an inverted U-shaped path, as financial intermediation develops. The positive linear effect of financial intermediary development is observed at the lower and higher ends of the conditional per capita income distribution. This suggests that development of financial intermediation in China might not have statistically significant differential effects in low-income or high-income rural villages.