FinTech Firms and the Exploration and Exploitation of Financial Landscapes

A problem is said to be complex if it comprises many parts or dimensions with various interactions. In such a case, it is reasonable to assume that the problem admits a multidimensional solution space, which comprises all candidate solutions. Different solutions can have different goodness score, which can be called fitness. Innovators and problem solvers interested in solving a complex problem are assumed to be located somewhere in the solution landscape. Ideally, a searching agent would be interested in finding the solution with the highest fitness possible, and in doing so, employing a search heuristic. Financial problems such as investment, payment, risk management, and fraud detection are all examples of complex problems that have complex landscapes of solutions. In searching for solutions to financial problems, firms often engage in financial innovation. A particular type of financial innovation is developed by FinTech start-ups, which introduce innovations in the backend and customer-face financial services. FinTech firms are thought to follow a unique approach to change characterized by agility and unconstrained search for new solutions. So far, little has been done to understand the nature of the search behavior of FinTech firms; this, therefore, is still an open gap in the literature that requires further investigation. In this theoretical chapter, I first propose to use the theory of fitness landscapes to model the solution space of financial problems, and second, I adopt an open innovation perspective to model the search heuristics of FinTech firms who look for solutions in such landscapes.