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Wednesday, March 13, 2019

Fintech Reality

On Fintech, hype or promise?

Wharton's Itay Goldstein and Andrew Karolyi from Cornell discuss a new research intitiative that aims to clarify where the actual promise lies regarding fintech.

Three years ago, the editors at a top academic journal in finance were concerned. A lot of venture capital was flowing into fintech, or financial technology, but there wasn’t much research about the topic coming from academics, who are known for their rigorous testing and analysis. So they decided to adopt a new editorial protocol to encourage more research: They would accept a paper regardless of the final results, taking pressure off the researchers to have conclusive findings. Of course, proposals for papers have to pass tough scrutiny first to get pre-accepted.

It worked. The Review of Financial Studies received 156 proposals from 409 authors representing 183 universities and 22 research organizations or government agencies. They came from more than 20 countries, and nearly half were from outside North America. The top nations outside of the U.S. were China, Germany, U.K., Australia, Canada and India. The editors ultimately chose 10 proposals, which fell into three categories: blockchain, financial services and big data. The papers will be featured in the Review’s May edition.

“Fintech is really a group of technologies that have been emerging in recent years and potentially are going to completely reshape the finance industry,” said Itay Goldstein, Wharton finance professor and executive editor of the Review, on the Knowledge@Wharton show on SiriusXM. “What is unique about the current fintech revolution is that a lot of these technologies are happening outside of the traditional finance sector.” (Listen to the podcast at the top of this page.)

For decades, financial innovations such as ATMs and wire transfers largely came from the financial institutions themselves. But with the advent of connected mobile devices and consumers’ increased comfort in transacting business by cell phone, non-financial companies are getting into the game, such as tech giants and startups. They are offering mobile payments, money transfers, peer-to-peer loans, crowdfunding, blockchain, cryptocurrencies, robo-investing and other services, according to the Review.

With billions of dollars being pumped into fintech, it was thus surprising to the editors of the Review that there weren’t more academics looking into it. “We were absolutely struck by the fact that there was such a dearth of research,” said Andrew Karolyi, deputy dean and dean of academic affairs at Cornell SC Johnson College of Business and a former executive editor of the Review, who joined Goldstein on the radio show. “We felt like we needed to do something to stoke [interest].”

“What is unique about the current fintech revolution is that a lot of these technologies are happening outside of the traditional finance sector.” ... "

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