THE BANK OF THE FUTURE, THE FUTURE OF ...

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digitized via mobile wallets, payment apps, robo-advisors for wealth and retirement planning, equity crowdfunding platforms for access to private and alternative.

UNIVERSITA’ DEGLI STUDI DELLA CAMPANIA “Luigi Vanvitelli”

DIPARTIMENTO DI ECONOMIA CORSO DI LAUREA MAGISTRALE IN ECONOMIA, FINANZA E MERCATI Tesi di Laurea in CREDIT RISK

“THE BANK OF THE FUTURE, THE FUTURE OF BANKING: AN EMPIRICAL ANALYSIS OF EUROPEAN BANKS”

Relatore: Chiar.mo Prof. Francesco Campanella Correlatore: Chiar.ma Prof. Giovanna D’Alfonso

Candidato: Federico Giovanni Rega Mat. A88000306

Anno Accademico 2016/2017

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Table of Contents

INTRODUCTION…………………………………………………………………………………..9 CHAPTER I | OVERVIEW OF THE GLOBAL BANKING INDUSTRY…………………………..11

I.1| OVERVIEW OF THE BANKING INDUSTRY ……………………………………………...11

I.2|THE DIGITAL TRANSFORMATION ………………………………….…............................13 I.3|BRANCH OR NON-BRANCH: IS THIS THE DILEMMA?.....................................................18 I.4|SILICON VALLEY IS COMING: THE OLD BANKING IS DISRUPTED…………………….23 CHAPTER II - THE FINTECH REVOLUTION: HOW FINTECH WILL RESHAPE BANKING…………………………………………………………………………………………41 II.2|DRIVERS OF FINTECH DISRUPTION AND TECHNOLOGIES…………………………..44 II.3|FROM THE “PARTITA DOPPIA” TO DLT: A NEW FINANCIAL INFRASTRUCTURE……………………………………………………………………………….47 II.4|BLOCKCHAIN + BIG DATA………………………………………………………………….53 II.5|INTERNET OF THINGS……………..…………………………………………………….......57 II.6|AI & MACHINE LEARNING……..………………………………………………..................60 II.7|P2P LENDING & CROWDFUNDING ……………………………………………………….66

CHAPTER III – REGULATORY AND LAW CHALLENGES………………………………..73 III.1| AUTHORITIES’ APPROACHES…………………………………………………………….76 III.2| REGULATORY SANDBOXES………………………………………………………………82 2

III.3| BLOCKCHAIN & SMART CONTRACTS: A LEGAL REVOLUTION…………………...86 III.4|DATA PROTECTION AND PRIVACY ISSUES…………………………………………….90

CHAPTER IV – AN EMPIRICAL ANALYSIS ON EU BANKS……………………………...95 IV.1|THEORETICAL BACKGROUND AND RESEARCH HYPOTHESES…………………....95 IV.2| SAMPLE, VARIABLES AND METHOD……………………………………………...100 IV.3|RESULTS………………………………………………………………………………..115 IV.4| DISCUSSION ……………………………………………………………………………....122 IV. 5|CONCLUSIONS…………………………………………………………………………......127 IV.6| APPENDIX A ………………………………………………………………………………..130 REFERENCES …………………………………………………………………………………..136 SITOGRAPHY …………………………………………………………………………………..140

Abstract Technological advancements have transformed our economy and nowadays are disrupting also financial services. Finance and Technology were considered like Mars and Venus 20 years ago, two opposing polarities. Since the end of the first decade of the 21st century, after the global crisis, a new term turned up, “fintech”, and retail financial services are being further digitized via mobile wallets, payment apps, robo-advisors for wealth and retirement planning, equity crowdfunding platforms for access to private and alternative investment opportunities and online lending platforms. Nowadays, the global fintech landscape is made up by over 4000 companies1. And many disrupting companies or startups are looming. The term “FinTech2” refers to a dynamic ecosystem and defines “companies that provide or facilitate financial services by using technology” (World Economic Forum, 2015). The term’s origin can be traced to the early 1990s and referred to the “Financial 1

Venture Scanner is tracking the FinTech ecosystem with this list, which appears to cover both US and Europe: https://www.quora.com/Is-there-a-list-of-FinTech-startups 2 The term obviously derives from a contraction of two words: Finance and Technology.

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Services Technology Consortium”, a project initiated by Citigroup3 in order to facilitate technological cooperation efforts. However, it is only since 2014 that the sector has attracted the focused attention of regulators, industry participants and consumers. The interest in IT investments in the banking industry comes from the intrinsic nature of banking activities: to process, manage, and strategically use information. Banking is an information intensive business, which means that information technology plays an increasingly significant role (Campanella et al., 2013). Several consequences arise. First, IT has facilitated the development of new, more sophisticated financial products as well as the introduction of alternative delivery channels to the traditional branch network. Second, IT shapes the ways in which banks carry out their business, with the application of new and improved technologies expected to reduce bank costs over time. Third, in the EU, the development of costsaving technology, together with deregulation, has intensified financial sector competition (Beccalli, 2007). Despite the conspicuous explosion of digital banking, mobile banking, fintech startups and the implications of AI adoption, there is a relative dearth of empirical studies that provide a quantitative analysis of the impact of the Fintech on banks´ financial performance. Instead there is a significative literature on internet and multichannel banking and the latest studies seem to find a positive relationship with profitability. Based on this theoretical background and in-depth research – from different points of analysis/perspectives, considering both financial and legal implications of the phenomenon – this work is organized as follows: the first chapter will give an overview of the global and European banking industry, summarizing several problems and possible future trends; the second chapter will focus on having a more complete understanding about the Fintech revolution, its drivers and core technologies; the third chapter addresses the legal implications and regulatory challenges, focusing also on data protection and the efforts of the Supervision Authorities; in the final section, an empirical analysis on a data panel of 38 European Banks for the period 2013-2015 (114 observations), the author presents research approach and hypotheses; then, there is a description of the data, methodology and results. Findings suggest: 1) the existence of a significant positive relationship between the technological innovation (fintech) and bank profitability; 2) the existence of a negative relationship between the number of physical branches and bank profitability. The author concludes by discussing the thesis’s contribution and future research. REFERENCES

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“Times have changed," a Citi executive, Catherine A. Allen, said in a 1993 article: "Cooperation is necessary for common industry standards." Source: https://www.americanbanker.com/opinion/fintech-the-word-that-is-evolves

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