Disruptive Innovation in Business and Finance in the Digital World by Choi J. Jay;Ozkan Bora;

Author:Choi, J. Jay;Ozkan, Bora;
Language: eng
Format: epub
Publisher: Emerald Publishing Limited
Published: 2019-09-16T00:00:00+00:00

2. CONCEPTUAL FRAMEWORK

2.1. Why the Current Financial System is Inefficient

The financial system is inefficient because it is clogged with excessive regulation that hinders innovation (Baer & Pavel, 1988; Blind, Petersen, & Riillo, 2017). From hindsight we also know that stiff regulation creates inefficiencies (Barth, Lin, Ma, Seade, & Song, 2013; Chortareas, Girardone, & Ventouri, 2012); the biggest of them is the high cost of complying with regulatory demands and the cost of doing regulatory paperwork. For example, the excessive regulation immediately after the 2008 global financial crisis led to high compliance costs for banks particularly small banks. Secondly, the financial system is inefficient because it is too centralized (Popov, 1999), which makes it resistant to change and vulnerable to systems failures and attacks. And from hindsight we know that centralized systems are often backward-looking and less proactive and are not forward-looking compared to decentralized systems.1 Thirdly, the current financial system does not provide a fair platform that allows individual borrowers to engage directly with wealthy individuals or big institutional lenders2 to obtain loan in order to avoid the cost they would otherwise incur if they obtain loan from financial intermediaries such as banks and other lending institutions. The promoters of blockchain finance believe that blockchain finance can eliminate these problems.

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