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Using blockchain technology in credit rating industry to promote an innovative bond-pays model

Krishna Vishwanath Iyer (Department of Management, Symbiosis International (Deemed University), Pune, India)
V.V. Ravi Kumar (Department of Management, Symbiosis Institute of Business Management Pune, Symbiosis International (Deemed University), Pune, India)

International Journal of Innovation Science

ISSN: 1757-2223

Article publication date: 24 February 2021

Abstract

Purpose

This paper aims to propose an innovative blockchain-based system enabling implementation of a bond-pays model in credit rating industry. Issuer-pays model has led to conflict of interest resulting in rating shopping and inflation. Alternative business models have their own problems, e.g. investor-pays model suffers from “free rider” and public dissemination challenges, whereas government-controlled business models can lead to market distortion. Bond-pays model has been difficult to implement owing to operational difficulties in managing co-ordination amongst multiple entities involved, often with conflicting goals. Blockchain technology enables inter-organizational systems that foster trust amongst non-trusting entities, facilitating business functions such as credit rating to be carried out.

Design/methodology/approach

This paper outlines current processes in credit rating business that has led to repeated rating failures and proposes a new set of processes, leveraging capabilities of blockchain technology to enable implementation of an arms-length bond-pays model.

Findings

A proof-of-concept system, namely, rating chain has been designed to implement a small part of the proposed model to establish technical feasibility in a blockchain environment.

Practical implications

A fully functional blockchain-based system on bond-pays business model, if built and adopted, could impact how credit rating market functions currently and could contribute to a reduction in rating-related challenges.

Originality/value

The proposal to adopt blockchain technologies in implementing a bond-pays model in credit rating industry is a novel contribution.

Keywords

Citation

Iyer, K.V. and Ravi Kumar, V.V. (2021), "Using blockchain technology in credit rating industry to promote an innovative bond-pays model", International Journal of Innovation Science, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJIS-10-2020-0200

Publisher

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Emerald Publishing Limited

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