Financial Technology and Innovation

Open banking standards call for banks to publish standardised Application Programming Interfaces (APIs) that give authorised third parties access to account and transaction data, with the consumer’s permission, that was once only available within the bank’s own systems. The real-world outcome is a transformation of the financial intermediation chain – banks are infrastructure providers, FinTech firms are service assemblers, and non-financial brands are including banking services directly within their own platform via Banking-as-a-Service architectures. This paper introduces the Open Banking Competitive Dynamics Framework (OBCDF), a multi-layered analytical framework that considers data, platform, competitor, and outcome layers, and tests the competitive impact of open banking API adoption on bank performance using a staggered difference-in-differences design with a panel of 45 banks over 10 quarters. API adoption is found to increase connections with third-party providers by 7.2 per quarter and the share of non-interest income by 0.62 percentage points, but also result in a statistically significant, although small, decline in the share of the deposit market. The TPP connections gained from early adoption are also found to be different by bank size, with larger banks seeing the largest absolute increase in TPP connections, and smaller banks seeing the largest absolute increase in non-interest income. Pre-treatment parallel trends tests are used to validate the identification assumption. The results have implications for incumbent bank strategy, the incentives for FinTech players and the design of open banking regulatory frameworks in jurisdictions currently developing mandates that are outside of the PSD2’s scope.

Indonesia and Malaysia are a perfect example of the global FinTech order: two of the world’s biggest Muslim-majority economies with growing and fast expanding digital financial infrastructure, with different regulatory architectures and at different stages of maturity of the cryptocurrency market. In this paper, a systematic review of 40 peer-reviewed studies on technology infrastructure for financial markets in general, the dynamics and adoption of cryptocurrencies, design of central bank digital currencies, Islamic FinTech, and comparative regulatory frameworks in both countries is presented. The review includes five thematic streams: digital payment infrastructure, connectedness of the cryptocurrency market, CBDC development, CBDC Shariah compliance, and financial inclusion enabled by FinTech. The Key findings indicate that Indonesia, under the guidance of the Otoritas Jasa Keuangan (OJK) since 2023, has more than 30 licensed exchanges and an estimated 15 million retail investors, while Malaysia’s Securities Commission (SC) prioritises investor protection over market breadth, issuing five exchanges with higher levels of integration in Islamic finance. There are three structural challenges in both jurisdictions: the lack of ASEAN-level regulatory coordination, the digital infrastructure gap that remains in rural populations and the lack of a harmonized screening mechanism for assets based on Shariah. The review pinpoints 7 high-priority research gaps and outlines a research agenda for the future, organized in 5 methodological pillars.

Machine learning credit scoring There is no intentional discrimination in models. They differentiate according to data. Such models, trained on borrower histories binned by income, are known as stratified models. absorb and convert the economic situation of the disadvantaged groups and convert them into differential approval rates that last and does not depend on actual creditworthiness. This paper makes a systematic fairness An analysis of three popular classifiers (logistic regression, On a dataset of digital lending, random forest, and XGBoost. Calibrated against statistics of the US consumer credit market. Deploying four Specific fairness measures for each income, gender and age group, and we observe that there is statistically and economically a disparate impact based on income. The poorest fifth of the population earns. approval rates a whopping two decades lower than the top 20.approval scores 20 percentage points lower than the highest. It is not the case that either quintile or logistic regression are 4/5 adverse.Neither quintile nor logistic regression are 4/5 adverse. The standard decision threshold was used and the impact rule was applied. Neither income reweighting nor threshold calibration can get rid of the bias fully since it doesn’t address the bias directly. sacrificing predictive performance. Threshold calibration alone can get into an approximate parity of approval, but with a price of differential. Error rates that present lenders with equal opportunity issues. The results have direct implications for the deployment of The application of algorithmic credit scoring in new regulation regimes, and This contains the EU Artificial Intelligence Act and the US fair lending law.

Digital connectivity has grown more rapidly than people’s engagement with formal digital finance, creating a policy gap beyond mere device, account and network coverage. This article proposes an innovation-conversion framework to approximate the effectiveness of the enabling conditions to be translated into digital-payment usage. Six crosssections are set up as non-competing predictive specifications, repeated cross-validation, out-of-fold benchmarking, regional stress tests and unsupervised archetype mapping to analyse a harmonized 2024 cross-section of 74 low and middle-income economies. The top performing Elastic Net specification achieved a mean cross-validated R2 of 0.867, an out-of-fold R2 of 0.881, and a mean absolute error of 5.23 percentage points. The signal from account ownership was the predominant one, with additional information coming from mobile internet access, self-reported exposure to internet fraud, and internet-skill constraints. The proposed conversion-gap index defines the economies where the actual use of payments significantly under- or over-performs what is expected given the enabling environment. The positive converters were Mongolia, the Republic of Congo, Lesotho and Venezuela, while the largest negative gaps were in India, Ethiopia, Nepal, Sri Lanka and the West Bank and Gaza. Mature digital-use systems, use lagging access-rich systems, mobile-led transitions and foundational access gaps are four structural archetypes that further distinguish the mature systems. The findings change the perception of financial innovation as a conversion issue: infrastructure is important, but institutional onboarding, accessible accounts, building of trust, security, and capabilities will be the keys to making connectivity a commonplace financial transaction.