Transformation Dynamics in FinTech

The following sections are included:

• About the Editors
• About the Contributors
• Contents

The following sections are included:

• Advances in FinTech Industry
• Intersection of the Three Key Dimensions: OI, FinTech Ecosystem, and Digital Integration Framework
• Unfolding the Dimensions of FinTech
• Contributions
• References

FinTech, the rapidly evolving new breed of technology-driven financial offerings, generates a renewed momentum by bringing together disconnected trends challenging incumbent financial services firms. In response to the increasing FinTech-enabled forces of technology innovation, process disruption, and services transformation, along with the fact that FinTech is gradually becoming an area of academic research, this chapter contributes to the innovation and technology management literature by (1) providing a mapping of current FinTech research and (2) suggesting a FinTech research agenda. A scoping review across six major databases has been conducted, leading to an N = 92 sample chosen and analyzed based on pre-determined selection criteria and according to the developed theoretical framework. The review illuminates observations with regards to the scope, conceptualization, topical themes, and research approaches revolving around extant FinTech scholarship, while providing novel and comprehensive knowledge on the underlying technology aspects, FinTech-enabled business models, and value-creation outcomes.

Innovation in financial technology is often conceptualized as centering upon technological developments or novel applications of technology to undertake financial transactions. Yet the drivers of innovation often lie in the global mobility of people, organizations, ideas, skills, capital, and technology (Armano and Javarone, 2017). While mobility is increasingly in the reach of ordinary people, such as through migration, access to technology, or education, the ability to produce innovation or consume innovative products is unevenly distributed. Moreover, new products on the market are more likely to cause problems or risks to consumers as their potential impacts have not yet been fully tested. This is especially true of the new range of financial products, commonly known as “FinTech,” that are emerging in the consumer market. Today, there are far more financial services available to consumers, and they are provided by a wide range of companies, many of whom are not traditional financial service providers. The availability of financial services through the Internet, and their use on mobile devices, means that consumers can access a far wider and more specialized array of financial products from companies located around the world. This greater level of access and choice in financial products has the potential to deliver both positive and negative effects for consumers. On one hand, it can expand consumer choice, increase access to product information, assist with financial literacy, and decrease transaction costs. On the other hand, it may exacerbate certain social and economic issues, such as fraud, user errors, learning difficulties, ineffective UX, stress, and financial mismanagement. Within this context, “mobility” is a useful analytical tool to identify the different kinds of effects that emerge from financial innovation within different populations, and in different use-cases. In this chapter, I explore the relationship between innovation, mobility, and change, and how this relationship affects consumers. I discuss a range of issues that increased access to financial products presents for consumers, particularly in the areas of product mobility, human mobility, and information mobility. I draw upon the “mobilities turn” (Schiller and Salazar, 2013; Sheller and Urry, 2006), which has addressed the various ways, both positive and negative, in which the increased mobility of people, things, and information around the world affects people’s lives and social relationships. I end with a discussion of the challenges researchers face in keeping up-to-date with the social effects of financial transformation.

This chapter provides a review on key issues and their implications caused by rapidly changing business environments which have prompted a call for new strategic organizational decision-making capabilities in innovation. Looking at the problem through the lens of the financial services (FS) landscape, thematic analysis points toward traditional FS players that are faced with uncertainty and disruptions triggered by technology-enabled financial solution providers (FinTech) and their new business models devised for 21^st-century client-integrated ecosystems. The analysis highlights that, amid accelerating environmental complexity, business leaders and educators are called upon to become more forward thinking and to develop their creative and strategic innovation capabilities. Considering the foresight and design literature, the hypothesis is that a systematic and collaborative futures thinking function can improve the strategic innovation direction of the enterprise. This chapter is divided into five sections that describe, at a high level, the FS landscape in the context of China; introduce the role of strategic foresight and design in innovation; and outline the four stages of integrating their synergies, which are exemplified by stories of real-case scenarios derived from FS futures studies over the medium-term time horizon.

The emergence of the most recent FinTech phase resulted in multidimensional challenges, putting pressure on the traditional modus operandi within the financial services industry. Whilst incumbents initially responded to this FinTech phase by waiting out or attacking the new market entrants, the environment more recently shifted toward a more collaborative approach built on open innovation. The transition is further encouraged through regulatory initiatives (e.g. open banking), paving way for the development of FinTech-enabled ecosystems. Based on a review of publicly available information, this research is founded on academic and industry literature and aims at illuminating how banking organizations utilize open innovation as a vehicle for strategic intervention in order to respond to the changing market environment. Several cases that correspond to the attributes and characteristics of the three main types of open innovation (inside out, outside in, and coupled open innovation) are investigated, and common determinants contributing to the success of those initiatives derived in order to provide an outlook on future developments within the industry.

The FinTech disruption has affected the global financial industry, which required many countries to cater to this disruption by building the right FinTech Innovation Ecosystems. For these types of ecosystems to succeed, they need to be based on open innovation concept, where multiple players in the ecosystem can work together to ensure FinTech innovation. The FinTech industry itself is formed based on various collaborations between different stakeholders to come up with innovative products. However, on a macro level, for countries to become a global FinTech hub, they need to ensure the existence of nine important components of FinTech Innovation Ecosystem. These components are FinTech Start-ups, Traditional Financial Institutions (FIs), Government, Financial Customers, Technology Providers, Human Capital, Supporting Platforms, Associations, and International Profile. These nine components, using an open innovation concept, can play a major role in establishing the right FinTech Innovation Ecosystems, which shall lead countries to become global FinTech hubs.

In our qualitative study of a newly emerging FinTech cluster, we discuss how different stakeholders can reinforce value creation within the cluster. Focusing on the internal organization of the cluster, we identify the motivations of each stakeholder group, how these diverge, and what challenges these produce. While our case study is limited to Norway, we believe that our recommendations on how to create a common culture for value creation, adapting business models, communicating progress, and developing selection criteria framework, are applicable to FinTech clusters around the globe.

The global Wealth Management industry is changing fast and incumbents need to anticipate and react in order to be successful. Led by a significant rise in wealth in Asia, changing customer preferences, and digital transformation post the global financial crisis, open business models will assist innovative companies in creating tailored solutions for their new customer segments. New customer segments among women, millennials, and cross-border require new services aided by digital technology and are customer-centric and values-based, not just focused on investment returns.

Business models should be underpinned by a hybrid offering of digital services with a strong focus on human relationships. Systems, processes, and structures must ensure agility, innovation, and efficiency in order to continue to compete in this environment and be ready for ongoing technology-led disruption.

Technology-led disruption and involving customers in the value creation process using the Lean methodology and value co-creation can be used in order to understand and increase customer value. FinTech should be simple and responsive and designed to augment human advisors.

Open banking regulatory regimes represent an attempt by regulators to take advantage of a wave of digitalization and its associated sea of data to encourage more dynamic and efficient financial services sectors. This chapter explores Australia’s Consumer Data Right regime and how its planned expansion beyond financial services could propel fundamental changes to large sectors of Australia’s economy and society. We explore why these regimes are being put into place now and what these changes could look like, including potential consequences. Lastly, we provide recommendations on how regulators should build data sharing regulatory regimes. In order to best achieve the goals of encouraging data leveraged social economic development, financial inclusion, and furthering innovation through data sharing requirements, we make three recommendations. First, regulators must ensure the burdens and benefits of these regimes are consistent and fair, as it is very easy to replace one asymmetry with another. Second, consumers must be at the center: their benefits and safety are paramount to adoption and success of an economy that properly leverages consumer data. Third, open banking regimes must consider other technological developments, regulations, and trends to be incorporated as part of a larger national data strategy if they are to be effectively adopted.

Performing open innovation within a company should also consider the potential of new and disruptive digital technology such as blockchain. In the plethora of business models of digital technology, blockchain seems to be the most disruptive versus social media, cloud computing, and big data. Blockchain is a digital ledger where transactions are chronologically recorded, and a copy of the ledger is distributed across a network. Initially used by financial technology companies to provide cryptocurrency services, major financial institutions, technology firms, and other non-financial companies are investing in understanding the business application of blockchain. Similarly, a lot of technology start-ups have emerged in the past years who have businesses capitalizing on blockchain-based services. In this chapter, we ask: how can we make sense of blockchain, by asking two questions that relate to the business applications of blockchain and the possible start business models. Our systematic review extended the conception and understanding of a financial technology as a way to pursue open innovation through the lens of a business model. We do this by analyzing blockchain various business applications, identifying the business models used by existing start-ups, and then proposing the ecosystem of blockchain business application.

An asset class can be considered truly mature until family offices are investing in it. Family offices are private wealth management advisory firms that serve ultra-high-net-worth investors. They are different from traditional wealth management shops in that they offer a total outsourced solution to manage the financial and investment side of an affluent individual or family. Having built their fortune with the purpose of wealth preservation across generations, families are notoriously risk-averse. This is, therefore, the perfect “canary in the mine” set up to understand if FinTech is a real category beyond simply speculative investments, and if its applications in artificial intelligence (AI) and blockchain have already crossed the boundary of trust among investors concerned with capital preservation. The book chapter begins by summarizing relevant statistics from private markets investment activity and then moves into using a predictive analytics (evolutionary cognitive algorithm) approach to describe the relevant patterns that are in process of formation. The coverage is global and the period of study spans over a decade, from January 1st, 2007 to November 5th, 2018.

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.

The following section is included:

• Index