Fin vs. Tech: Determinants of Fintech Start-Up Emergence and Innovation in the Financial Services Incumbent Sector

Abstract

In the aftermath of the global financial crisis, new financial technology (fintech) start-ups have emerged to challenge the long-established position of financial services incumbents. Drawing on resource-based theory and institutional theory, we investigate how the emergence of fintech start-ups and their financing is shaped by new regional knowledge creation and the lack of trust in financial institutions across 21 OECD countries, 226 regions and over the 2007 – 2014 period. While we find that knowledge generated in the IT sector is much more salient for fostering new fintech start-ups than knowledge generated in the financial services sector, we also find an increasing (decreasing) importance of new knowledge created in the financial services sector (IT sector) as fintech start-ups grow and seek financing. Our paper unveils that in the years where the level of trust in financial institutions falls within a region, there is an increase in the financing provided to fintech start-ups, however regions with historically low average levels of trust in financial institutions attract less fintech investment overall.