Financing strategy analysis for a multi-sided platform with blockchain technology

Thanks to the credibility and transparency of blockchain technology, small and medium enterprises (SMEs) can use self-guarantee to obtain loans from financial institutions. Unlike the well-developed supply chain finance (SCF) using guarantees provided by a core enterprise, the effectiveness of SCF with self-guarantee is unclear, especially in a multi-sided market setting. The current paper explores this effectiveness by building an analytical model involving four kinds of players: a multi-sided platform, a customer, a bank, and multiple transportation service providers. In this setting, a traditional SCF model with Platform Undertakes Guarantee (PUG) and a novel SCF strategy with self-guarantee (i.e. Customer Undertakes Guarantee (CUG)) are analysed. The results indicate that CUG can bring a Pareto improvement for the market compared to PUG. Although CUG displays higher efficiency, it is not always beneficial to the platform when the customer's opportunity cost rate is higher than the platform's. Furthermore, to mitigate credit risk caused by a low-credit customer, the platform may employ a prepayment strategy. Analytical results of this study indicate that the prepayment ratio does not affect the customer's cost, and thus, providing a high prepayment ratio but a relatively low service fee rate to low-credit customers is suggested to the platform.

Automated summary

This study investigates the effectiveness of SMEs using self-guarantee for loans and proposes financial strategies for different market scenarios. The research findings suggest that while the self-guarantee model is more efficient, it is not always beneficial for the platform. Additionally, to mitigate credit risk, a prepayment strategy could be an effective measure.