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Competition and Innovation in the Financial Sector: Evidence from the Rise of FinTech Start-ups

Author

Listed:
  • Doina Caragea
  • Theodor Cojoianu
  • Mihai Dobri
  • Andreas Hoepner
  • Oana Peia

Abstract

We provide new evidence on the effects of competition on incumbents' innovative behavior by examining the rise of FinTech start-ups over the period 2000-2016. We employ machine learning techniques to classify a large global sample of patent applications into five FinTech categories. We exploit the variation in the share of FinTech patent applications by non-financial startups to incumbent financial firms to measure competitive pressures from outside the financial industry. We show that higher competitive pressures from non-financial start-ups increases the probability that financial incumbents innovate. Moreover, competition from start-ups results in a higher number of FinTech patent applications by financial incumbents as compared to non-financial firms, especially when the innovations of FinTech start-ups are more important, as proxied by future patent citations count.

Suggested Citation

  • Doina Caragea & Theodor Cojoianu & Mihai Dobri & Andreas Hoepner & Oana Peia, 2022. "Competition and Innovation in the Financial Sector: Evidence from the Rise of FinTech Start-ups," Working Papers 202201, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:202201
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    File URL: http://hdl.handle.net/10197/12774
    File Function: First version, 2022
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    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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