Fin vs. Tech: How Does New Knowledge Creation and Lack of Trust in Financial Services Incumbents Influence the Emergence and Financing of Fintech Start-Ups?

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.

Keywords: fintech, financial technologies, entrepreneurship, knowledge spillovers, blockchain, cryptocurrencies, insurtech

JEL Classification: D83, L26, O31, P25, R51