Assessing global interest in decentralized finance, embedded finance, open finance, ocean finance and sustainable finance

2.1 Diffusion of innovation theory

The diffusion of innovation theory developed by E.M. Rogers in 1962 provides a good explanation on how innovation spreads within a population from introduction of the innovation to widespread adoption of the innovation. The theory showed that innovations spread from introduction of the innovation to early adopters, early majority adopters, late majority adopters and to the laggards. Rogers (2010) identified five elements that influence the spread of a new innovation. The five elements are as follows: the innovation itself, the adopters, the communication channels, time and a social system. By communication channels, Rogers refers to the way in which innovations are communicated to different parts of society. Rogers argued that the way in which innovations are communicated to different parts of society is an important factor influencing the early adoption or late adoption of innovations. In this paper, the Internet is considered to be main communication channel through which people learn about specific innovations such as DeFi, EmFi, OpFi, OcFi and SuFi. This study considered web search for Internet information about specific innovations to be a crucial determinant of people’s growing interest or declining interest in specific innovations. I then argue that the early adopters of DeFi, EmFi, OpFi, OcFi and SuFi innovations are people in society who searched for Internet information about these innovations at an early stage. Doing so at an early stage allowed them to understand the benefits and risks of these innovations thereby leading to greater interest in these innovations, and it helped them to reach a decision to embrace DeFi, EmFi, OpFi, SuFi and OcFi at an early stage. In contrast, late adopters did not use the Internet to search for these things; rather, they adopted these innovations because other people have already adopted it.

2.2 Embedded finance literature

Existing studies on EmFi in the literature are practitioner white papers rather than academic papers. For example, Plaid and Accenture (2021) explored the huge opportunity for EmFi in the financial sector. They showed that EmFi can improve customer experience and unlock a huge market opportunity. They also showed that EmFi has the potential to generate US$230 bn in net new revenue by 2025. Plaid and Accenture (2021) suggest four ways through which EmFi can change how financial and nonfinancial companies do business in an era of embedded financial services. They suggest the need to (1) rearrange relationships between financial providers and businesses; (2) create new revenue streams for financial and non-financial companies; (3) create new forms of competition in financial services and other industries and (4) launch new partnerships among financial providers on behalf of businesses and providing them with the know-how to benefit from EmFi without hiring teams of software developers and compliance experts (Plaid and Accenture, 2021). Compton (2021) showed that large-scale EmFi can open the door to major innovation in financial services and can generate revenue of over US$140.8 bn by 2025 only if EmFi is (1) driven by technology, (2) offered and co-developed with third-party companies and (3) leads to a shift from a business to customer (B2C) model to a business to business (B2B) model for Fintech. Compton (2021) further argued that being prepared for EmFi disruption and being open to the opportunities and partnerships that EmFi presents will be vital because of the opportunities it presents for the Fintech ecosystem, the financial services industry and for global clients.

Torrance (2020) argued that by embedding banking and insurance functionality into the business of non-financial services, EmFi allows a business or merchant to integrate low-cost innovative financial services into customer experiences. He argued that there are three key issues that need to be addressed for a successful transformation to EmFi. The issues are (1) leadership understanding and commitment, (2) organisational structure, operating model and skills, and (3) technical capability. In another report, Kore Fusion (2021) showed that EmFi can transform finance and create US$ 7 tn of market value by 2030. They showed that the EmFi transformation will be driven by the shift to e-commerce and the use of APIs and banking as a service (BaaS) providers. They conclude that incumbent players and Fintech providers need to position themselves to partake of the EmFi opportunity and develop their own EmFi strategy. Teboul and Angelos Anastasiou (2021) showed that operationalizing embedded financial services will require deep expertise to manage regulatory, legal and compliance matters; and it demands significant technology investment, specialized skills to operate the services at scale and will also require high cost for businesses that want to offer embedded financial services to their customers.

2.3 Decentralized finance (DeFi) literature

Several studies in the literature such as Ozcan (2021), Katona (2021), Chohan (2021), Ozili (2022b) and Schär (2021) showed that there is widespread interest in DeFi because of its potential to eliminate traditional financial intermediaries, improve access to financial services, increase financial inclusion, increase transaction speed, improve flexibility in smart contracts, increase privacy and transparency, enhance security, increase trust and increase efficiency in the form of reduction in overhead costs for banks. Yavin and Reardon (2021) showed that DeFi can revolutionize modern finance by making banking more accessible and more flexible in society. Yavin and Reardon (2021) then advise banks to use DeFi solutions to improve their own banking product and services offerings. Meegan and Koens (2010) argued that DeFi is a new paradigm which allows decentralized financial services to be offered on the blockchain. They showed that although DeFi has numerous benefits, it also poses serious risks. Meegan and Koens (2010) opposed the idea of replacing CeFi services with DeFi services. Rather, they argued that there is a need for DeFi and CeFi to cooperate and coexist in the same financial system so that customers can enjoy the benefits of the two systems.

Some studies have assessed the challenges of DeFi. For instance, Zetzsche et al. (2020) criticized DeFi and argued that DeFi has the potential to undermine traditional forms of accountability and erode the effectiveness of traditional financial regulation and enforcement. Zetzsche et al. (2020) stressed the need for the regulation of DeFi through “embedded regulation” which allows regulation to be in-built in the design of DeFi. Chen and Bellavitis (2020) showed that DeFi may reshape the structure of modern finance and create a new landscape for entrepreneurship and innovation and could give rise to decentralized business models. Chen and Bellavitis (2020) showed that although DeFi could make the financial system more decentralized, DeFi still has to overcome a number of challenges to achieve its full potential. Chohan (2021) showed that DeFi prioritizes disintermediation and decentralization to empower individuals along crypto-anarchist principles. Chohan (2021) further showed that DeFi is often mired in many difficulties including market manipulation, distortionary incentives, excess short-termism, Ponzi schemes and money-laundering challenges that significantly hinder the widespread adoption of DeFi.

Schär (2021) showed that DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable and transparent way. However, Schär (2021) stressed that DeFi is still a small niche market with specific risks even though it has the potential to improve efficiency, transparency, accessibility and composability. Katona (2021) argued that although DeFi has the potential to provide financial services with an open, transparent and robust infrastructure, a great deal of effort is required for the development of the DeFi sector and the effective management of emerging risks associated with DeFi. Ozcan (2021) showed that although DeFi has promising benefits, DeFi markets in their current state are not technologically able to provide financial services on a global scale and at the scale that centralized finance (CeFi) provides. Ozcan (2021) then called for improved DeFi technology and sound regulation to increase DeFi acceptance. Johnson (2020) argued that although there are many crypto-enthusiasts who support and advocate for DeFi, many crypto trading platforms often turn to traditional financial service firms to receive help and support when their own crypto trading platforms fail, thereby showing that these DeFi platforms have not lived up to their promise of decentralizing financial services since they still seek help from traditional financial institutions.

2.4 Open finance literature

Existing studies on OpFi in the literature are mostly practitioner white papers rather than academic papers. For instance, Equinix (2020) argued that OpFi can lead to a shift in the entire banking process and can usher in an era of open collaboration across the digital ecosystem, and it can also lead to an increase in the demand for exchange of private data between businesses. Khan and Eroglu (2020) argued that OpFi creates an umbrella that takes products and services and connects them across a shared framework. They further argued that OpFi can eliminate the data fragmentation problem in the traditional financial system by providing a secure and efficient means for customers to allow businesses to share and use customer data across a common framework, and this will lead to increase in new competitors and will encourage innovation (Khan and Eroglu, 2020). Mothibi et al. (2020) showed that OpFi is enabled by specific technologies such as open API, cloud computing, big data and artificial intelligence. Many applications of OpFi can be found in payments, account aggregation, insurance, alternative lending and in financial management. Mothibi et al. (2020) also argued that the three main parties involved in an OpFi ecosystem are (1) existing financial institutions that collect and store customer data, (2) the third parties that collect customer data from financial institutions using APIs to offer value-added services to customers and (3) the customers whose information are collected and stored. In their research analysis, they showed that screen scraping and API technologies are the main technologies that are used to facilitate OpFi. However, they stressed that issues such as data privacy issues and cybersecurity issues will remain in the absence of effective and meaningful regulation.

Hope (2021) showed that open banking will transform into OpFi, and OpFi will become integrated into digital ecosystems or platforms thereby blurring industry boundaries towards creating an open data economy. This means that banks need to re-think their business models in order to provide compelling new propositions to their customers in order to stay relevant in an industry served by a complex web of players in the open data ecosystem. Mercer and Hallas (2021) showed that although the UK has adopted open banking, some identified issues in the UK OpFi model are (1) the lack of collaboration between customers, regulators and third parties, (2) the imposition of a 90-day re-authentication rule and (3) the lack of regulation for digital data sharing right. They then suggest some steps to address these issues. They suggest (1) the creation of a new data sharing right legislation, (2) the removal of the 90-day re-authentication rule, (3) the introduction of technologically-neutral regulation or principles-based smart regulation to govern the move towards OpFi and (4) the creation of a better governance architecture that incorporates better collaboration between regulators, financial institutions, third-party agents and customers. Woodhurst (2020) argued that the number of individuals and small businesses that have used open banking products or services has more than doubled in 2020. Woodhurst (2020) then suggests ways that the finance industry can lay the foundation for OpFi. Woodhurst (2020) suggests that there should be (1) a consistent approach to contextualised data sharing, (2) greater focus should be placed on value exchange to drive awareness and consumer education, (3) financial institutions should embrace further regulation as an opportunity and business enabler, (4) financial institutions should appreciate the compelling business case for change and (5) financial institutions should embrace digitization as a step to OpFi. Arner et al. (2021) argued that the future of data sharing under an OpFi framework can lead to two extremes: the first case is a situation where data will be controlled by a small number of massive firms and governments who will use it for profit, suppression and control purposes while the second case is a situation where data will be under the control of individuals which should support a more open and innovative economy and society.

2.5 Ocean finance

Walsh (2018) defined OcFi as effective investment of financial capital to produce sustained ocean governance. Walsh (2018) suggested four actions that are necessary for effective OcFi. They are (1) generate public and private financial capital through traditional and innovative finance mechanisms to create a diversified portfolio of revenue that supports ocean health; (2) invest financial capital effectively, efficiently and strategically to achieve measurable ocean outcomes and sustained ocean governance; (3) account for how financial capital is deployed against performance benchmarks and account for values of marine ecosystem services through time and (4) align public and private economic incentives with long-term ocean health.

Regarding the aim of OcFi, the European commission states that the aim of OcFi is to build an international coalition of financial institutions that endorse the sustainable blue economy finance principles on a voluntary basis, applying the principles to their investment decisions thereby showing their support for healthy oceans and for the development of a sustainable blue economy. Pereira and Nogueira (2021) argued that the transition to the blue (or ocean) economy requires funding contributions which is known as OcFi. They also argued that despite global efforts to develop principles to motivate investors to support projects suitable for a blue economy perspective, the OcFi project still has a long journey towards establishing a relevant OcFi arrangement towards a sustainable use of the oceans. UNDP (2022) argued that financial institutions can play a critical role in embedding social equity across ocean-linked sectors through their investment, financing and underwriting decisions.

Wabnitz and Blasiak (2019) argued that a major challenge for ocean financing is the difficulty in securing adequate financial resources to achieve the sustainable ocean economy goals, and it will be difficult to obtain a funding mechanism that go beyond traditional official development assistance and philanthropy. Sumaila et al. (2021) identified some barriers to financing a sustainable ocean economy. The barriers are (1) the gaps in understanding how the ocean economy contributes to the wider global economy; (2) the lack of universally adopted definitions, standards and taxonomy on what counts as a sustainable ocean economy investment and (3) market distortions. They argued that each of these barriers inhibit financing for a sustainable ocean economy and jeopardizes the future of biodiversity and ocean-based economic opportunities. Shiiba et al. (2022) propose a solution to these challenges which is to develop connections between all stakeholders to illustrate potential incentives for increasing private investment and public donations. This can be achieved through a regulatory-driven financing mechanism that incorporates the core concepts of blue finance in the context of marine governance both at the international and domestic levels. Notwithstanding, Thiele (2020) argued that convincing private sector investors and multilateral financing that blue infrastructure finance is not only possible and desirable but that it is both feasible and financially attractive is critical to achieve a just transition to sustainability. Rustomjee (2016) showed that small developing states have had limited success and are at the very earliest stages of mobilizing and securing finance and investment for the blue economy with most resources typically confined to established areas rather than new blue growth sectors. The author also points out that there are many challenges in scaling up finance and attracting investments in a wider range of blue growth sectors in small states. The author then argued that there is a need to (1) develop an enabling environment to attract investment, (2) improve information sharing among small states and (3) gain the support of international development partners and new partnerships to leverage blue investments in order to overcome these challenges.

2.6 Sustainable finance

Schumacher et al. (2020) defined SuFi as financial product and service offerings that take into account the pertinent ESG factors when making financing and investment decisions in the financial sector. Schoenmaker (2017b) argued that traditional finance focuses solely on financial return and risk while SuFi considers financial, social and environmental returns and is aimed at long-term value creation for the wider community. He argued that the major obstacles to SuFi are short-termism and insufficient private efforts. Fatemi and Fooladi (2013) argued that the traditional finance approach to shareholder wealth maximization is no longer a valid guide to the creation of sustainable wealth because of its emphasis on short-term results which has had the unintended consequence of forcing many firms to externalize their social and environmental costs. They also argued that an unwavering faith in markets’ ability to efficiently uncover long-term value implications of short-term results has created many unacceptable outcomes.

Sandberg (2018) argued that financial institutions should contribute to sustainable financing as part of their social responsibility to society. Kemfert and Schmalz (2019) suggest the need to develop a framework that encourages private financial market players towards sustainability. Pimentel and Ramírez (2021) emphasized the need to create concrete laws and regulations that incentivize actors in the financial markets to redirect funds from non-sustainable investments to sustainable alternatives. Fullwiler (2016) showed that the four important trends contributing to the growth of SuFi are blended-value investing; recognition that sustainability factors can be related to systematic risk; financial innovation to increase sustainability and building infrastructure for SuFi. Hong et al. (2021) state that the financial sector is being pressured to help keep global temperatures within 1.5 °C above pre-industrial levels. They show that governments and activists are pressuring financial institutions to ensure that a fraction of their portfolios are restricted to hold firms that can meet net-zero emissions targets by 2050. Schoenmaker (2017a) showed that financial institutions have started to avoid unsustainable companies from a risk perspective, and the frontrunners of sustainable financing are now increasingly investing in sustainable companies and projects to create long-term value for the wider community. However, the major obstacles to SuFi are short-termism and insufficient private efforts.

Migliorelli (2021) observed that the SuFi landscape is dominated by an overabundance of heterogeneous concepts, definitions, industry and policy standards. The author argued that such heterogeneity may hinder the smooth development of the conceptual thinking underpinning SuFi and it could give rise to specific risks that may harm the credibility of the SuFi agenda. These risks include green and sustainable washing, the rebranding of financial flows and the disordered adjustment in the cost of capital spreads between industries. Ziolo et al. (2021) examined the link between SuFi and SDGs. They analysed European countries in the Organisation for Economic Co-operation and Development (OECD) and argued that the SuFi model plays a fundamental role in implementing SDGs and ensuring that social and environmental sustainability are reflected in SDGs. They find that the more sustainable the finance model, the better the achievement of SDGs in the group of analysed countries. They also found a strong link between SuFi model and social sustainability (SDG 1, 3, 4, 5, 10 and 16); environmental sustainability (SDG 11, 12, 13 and 15) and economic sustainability (SDG 8, 9 and 17). Meanwhile, formulates theories of SuFi, namely, the priority theory of SuFi, the resource theory of SuFi, the peer emulation theory of SuFi, the life span theory of SuFi, the positive signalling theory of SuFi and the system disruption theory of SuFi. Ozili (2022c) argue that these theories offer believable explanations for the behaviour and actions of economic agents towards SuFi.

3.1 The data

Monthly data were extracted from Google Trends database. Data were extracted for five variables, namely, “interest in decentralized finance” data, the “interest in embedded finance” data, “interest in sustainable finance” data, “interest in ocean finance” and the “interest in open finance” data. These five variables were selected because recent studies show that DeFi, EmFi, OpFi, OcFi and SuFi are the future of finance and are also considered to the main disruptors of modern finance (see, for example, Woodhurst (2020), Arner et al. (2021), Schär (2021), Ozcan (2021), Compton (2021), Torrance (2020), etc.). The sample period is from January 2004 to January 2022 while the country coverage is global.

The data obtained from Google Trends database measures interest over time (or the popularity) of specific web-search keywords on the Internet. The data reflect the number of times people searched for specific keywords in a location or a time period. To obtain the data, I simply query the Google Trends database by inserting the keywords “decentralized finance” into the search box in the Google Trends database. The resulting data are what I refer to as “interest in decentralized finance” data. This procedure is repeated for the “embedded finance”, “open finance”, “ocean finance” and “sustainable finance” keywords. The data output from the database are numbers (or popularity count) ranging from 0 to 100. These numbers represent interest in a keyword relative to the highest point on the scale for the given location, region and time. The numbers capture the relative popularity of a keyword. A count of less than 50 indicates that interest in the keyword was relatively low. A count of 50 means that interest in the keyword is half as popular. A count of 100 means that interest in the keyword was highly popular and reached the peak popularity for the term. A score of 0 means there was not enough data for the term.

4.1 Country interest over time: graphical analysis

4.2 Correlation analysis

The Pearson correlation result is reported in Table 1. The correlation matrix in Table 1 shows that there is a significant positive correlation between global interest in DeFi information and global interest in EmFi information. This indicates that people who were interested in Internet information about DeFi were also interested in Internet information about EmFi. Also, there is a significant negative correlation between global interest in EmFi information and global interest in OpFi information. This indicates that people who were more interested in Internet information about EmFi were less interested in Internet information about OpFi. There is also a significant negative correlation between global interest in OpFi information and global interest in OcFi information. This indicates that people who were more interested in Internet information about OpFi were less interested in Internet information about OcFi. There is also a significant positive correlation between global interest in EmFi information and global interest in OcFi information. This indicates that people who were more interested in Internet information about EmFi were less interested in Internet information about OcFi. There is also a significant positive correlation between global interest in EmFi, OcFi and SuFi information. This indicates that people who were more interested in Internet information about EmFi were less interested in Internet information about SuFi.

4.3 OLS and GMM regression coefficient matrix

The regression coefficient matrix is used to determine the association between EmFi, DeFi, OpFi, SuFi and OcFi as shown in Table 1. I focus on the coefficient sign and the statistical significance of the coefficient of the variables in the univariate regression models. The purpose of the estimations is to check whether the coefficients of the regression estimations confirm the association in Table 1 above. To do this, I specify a one dependent variable and one independent variable regression model as shown in Table 2 below. The result in Table 2 shows that the coefficients are all positive and statistical significance in all the models. This indicates that OcFi, OpFi, EmFi, SuFi and DeFi are significantly related to each other in the ordinary least square (OLS) estimations in Table 2. The generalized method of moment (GMM) estimations in Table 3 also report coefficient signs that are positive and some coefficients are statistically significant. From the results in Tables 2 and 3, it can be seen that interest in EmFi and DeFi, OpFi and DeFi, OpFi and EmFi, OcFi and EmFi, OcFi and OpFi, SuFi and EmFi, and SuFi and OcFi are significantly related.