Publication Type
Journal Article
Version
publishedVersion
Publication Date
8-2023
Abstract
This paper provides new evidence on the effects of entry on incumbents’ incentives to innovate by examining the rise of FinTech innovations over the period 2000-2016. We employ machine learning algorithms to classify a large sample of patent applications into five types of FinTech innovations. We then show that greater competition from innovators outside the financial sector increases the probability that incumbent financial firms will innovate. Our identification strategy exploits the variation over time in the share of FinTech patent applications by non-financial start-ups relative to incumbent financial firms, as a proxy for competitive pressures from outside the financial industry. We also find that this increased competition results in a higher number of FinTech patent applications by financial incumbents relative to non-financial ones, especially when the FinTech innovations are more important, as proxied by the number of their future patent citations.
Keywords
FinTech, Patents, Machine learning, Financial incumbents, Innovation
Discipline
Finance and Financial Management | Technology and Innovation
Research Areas
Integrative Research Areas
Publication
Journal of Financial Services Research
Volume
65
Issue
1
First Page
103
Last Page
140
ISSN
0920-8550
Identifier
10.1007/s10693-023-00413-7
Publisher
Springer
Citation
CARAGEA, Doina; COJOIANU, Theodor Florian; DOBRI, Mihai; HOEPNER, Andreas; PEIA, Oana; and ROMELLI, Davide.
Competition and innovation in the financial sector: Evidence from the rise of FinTech start-ups. (2023). Journal of Financial Services Research. 65, (1), 103-140.
Available at: https://ink.library.smu.edu.sg/cis_research/397
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1007/s10693-023-00413-7