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Samenvatting - Introduction to Digital Economics and FinTech (MAN-BKV09)
- Instelling
- Radboud Universiteit Nijmegen (RU)
Samenvatting - Introduction to Digital Economics and FinTech (MAN-BKV09)
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SUMMARY INTRODUCTION TO DIGITAL ECONOMICSAND FINTECH, 2023-2024
Inhoudsopgave
Lecture 1 – Introduction................................................................................................................................. 2
Lecture 2 – Fundamentals of Digital Markets.................................................................................................. 3
Lecture 3 – Digital Markets............................................................................................................................ 7
Lecture 4 – Introduction to Networks........................................................................................................... 11
Lecture 5 – Multi-sided Platforms................................................................................................................. 13
Lecture 6 – Crowdlending............................................................................................................................. 15
Lecture 7 – Banks, CBDC’S, And Crypto......................................................................................................... 16
Lecture 8 – Social Trading............................................................................................................................. 21
Lecture 9 – Robo advisors + decision making for others and investment biases, AI, Financial Inclusion..........23
Guest lecture – Scalable capital, Marc Braun................................................................................................26
Guest lecture – ING, Simon Boonen.............................................................................................................. 27
Guest lecture – Auxmoney, Martin Balthasar............................................................................................... 28
Article 1 – llm ebook part 1.......................................................................................................................... 32
Article 2 – Mills et al, 2023........................................................................................................................... 34
Article 3 – Jensen, 2007................................................................................................................................ 35
Article 4 – Dietvorst, Simmons, Massey, 2014............................................................................................... 41
Article 5 – Dietvorst, Simmons, Massey, 2018............................................................................................... 45
Article 6 – Brown, Schmitz, Zehnder, 2023.................................................................................................... 50
Article 7 - With SBF, Gisele, and Michael Lewis at Peak of Crypto Craze........................................................57
Article 8 – DellAcqua et al, 2023................................................................................................................... 58
,LECTURE 1 – INTRODUCTION
DEFINITION OF FINTECH
The academic definition of FinTech: A financial industry that applies technology to improve financial activities.
The business definition of FinTech: FinTech companies are businesses that leverage new technology to create
new and better financial services for both consumers and businesses. It includes companies of all kinds that
may operate in personal financial management, insurance, payment, asset management. FinTech is a
BuzzWord that fits almost all new developments in finance (and related areas).
MOORE’S LAW
What happened between 1961 and today: computers get smaller and smaller; trend goes to miniaturization.
This follows Moore’s Law. This means that every two years, the number of transistors on computer chips
doubles/The number of IC transistors doubles every 18 months. There is a free “ miniaturization” dividend for
each round of miniaturization.
- Which means that for every computation on a computer chip, the distance between the units that do
the computation, is shorter.
- That allows faster computation.
- And more transistors to put in a machine, which allows to build more complex chips.
That allows to have lower cost of memory and stationary storage, which means you can do faster and more
efficient processing of data.
From the 1990’s the percent of people having access to the internet sharply increases. What does that mean:
- Exponential decline in computing and storage cost and growing network capacity. Which enables mass
adoption of the internet.
- Exponential data growth.
- Mobile use highest share.
- Information transmission increased. More cheaply and faster.
DISRUPTION OF EXISTING INDUSTRIES (FIRST WAVE)
The vast improvements in technology and the rapid adoption of the internet made several businesses
obsolete/out of date (to most of the population).
Information transmission: key advancement of ongoing digitalization: information transmission. The business
models that were at risk were those that deliver information on physical media (music industry) and broadcast
information (publishing industry).
DISRUPTION OF EXISTING INDUSTRIES (SECOND WAVE)
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,Growing internet use, more scope, and economies of scale. This leads to 1) growing information advantage of
tech firms over other actors in the economy and 2) growing willingness of users to lend their trust to internet
technology. This is a risk for business models that 1) rely on costumer trust or are based on knowing the
customer characteristics (trust-based) and 2) provide services which can be substituted by an (informed) digital
agent (information-centric). For example: travel agencies, hotel businesses, and cab drivers.
LECTURE 2 – FUNDAMENTALS OF DIGITAL MARKETS
DIGITAL GOODS AND SERVICES
Digital good: a networked (close to) zero marginal cost virtual object that has value for individuals or
organisations (such as word documents, emails).
Digital service: a networked (close to) zero marginal cost service that has value for individuals or organisations
(such as social media, e-banking, internet access).
There is a close link between the two, we use the term digital service for both unless a clear distinction is
necessary. Fixed costs for them are high. Over recent years, most companies in the digital economy began to
introduce a new idea: anything as a service (AAS). These mostly include cloud products:
- Software: cloud gaming, Google Docs, Office 365
- Platform: Amazon, eBay
- Infrastructure: Amazon Web Services, Drobox
Economies of scale: the more units produced, the lower the average costs. The lower the average costs, the
lower the price you can charge without making losses. The largest company will provide the entire market
(natural monopoly). So digital firms grow fast.
TAXONOMY OF GOODS
Taxonymy of goods: common pool resources, public goods, private goods,
club goods. There are 2 problems associated with certain types of goods:
free rider problem and tragedy of the commons.
Digital services are non-rival by nature. They can be excludable or non-
excludable. Despite their being non-rival, digital goods can show sings of
the tragedy of the commons: unwanted or illegal content, spam, denial of
service attacks, or service abuse.
The average return per users (APRU) is how much revenue an average
user generates over a specific period.
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, A problem that digital companies face is commoditization. This is a process by which goods or services become
indistinguishable (niet te onderscheiden) from a consumer’s point of view. Goods become commodities, like
electricity. Digital services and FinTech’s may especially become indistinguishable from each other. This is often
bad for companies because they lack a unique selling point.
TRANSACTION COSTS
Transaction costs are cost of making any economic trade when participating in the market. There are 4
categories: search and information costs, bargaining costs, policing costs and enforcement costs, and potential
frictions in the market or sludge in the choice architecture.
Bundling is combing several products or services for sale as a single package, for instance Office 365.
Unbundling is also a possibility, buying single songs instead of the entire album. Bundling is a strategy to
increase sales, and firms gain cheap access to market of the product tied on top. Potential problems with this
are: assuming a dominant firm in one market, the firms bundle its product with a second one the market of
which it doesn’t dominate, consumers then have immediate access to the firm’s product on this second
market. The consequence of this, is a spill over of market power, not based on true competition.
PRODUCING DIGITAL SERVICES
There are four ways to produce digital services:
- In-house: most common, a company develops the services with its own resources, possibly combined
with resources from another firm, the company controls the process and owns the final product, even
if some production parts were outsourced.
- Commons based peer production, large number of people participate in producing the service,
typically self-organised in contrast to in-house, usually interaction via platform, often no financial
rewards (example R).
- Crowdsourcing: organisations produce digital services by outsourcing tasks to the public, this is a form
of peer production, but with a more predefined product (example contests to improve
recommendation algorithm (Netflix))..
- Open source: source code and software are released under licenses that guarantee a certain specific
set of freedoms, potentially including use, modification, and redistribution. Closely related link to free
software. Licence is issued by copyright holder, e.g., approved by the non-profit organisation Open-
Source Initiative. Use of software typically free or subject to a small fee. Important ingredients to
Commons Based Peer Production (CBPP).
VALUE MODELS
Value models explain how value is created within a company.
- Value chain:
Linear chain of 3 elements: logistics in, production, logistics out. This describes a classical industrial
production. The major strategy is to reduce the cost per item.
- Value shop:
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