Please rotate your device to landscape mode to view the charts.

How Valuable Is FinTech Innovation?

Journal: Review of Financial Studies

Date: 20190501

Author: Chen, Mark A.; Wu, Qinxi; Yang, Baozhong

Abstract:
We provide large-scale evidence on the occurrence and value of FinTech innovation. Using data on patent filings from 2003 to 2017, we apply machine learning to identify and classify innovations by their underlying technologies. We find that most FinTech innovations yield substantial value to innovators, with blockchain being particularly valuable. For the overall financial sector, internet of things (IoT), robo-advising, and blockchain are the most valuable innovation types. Innovations affect financial industries more negatively when they involve disruptive technologies from nonfinancial startups, but market leaders that invest heavily in their own innovation can avoid much of the negative value effect.

Link: Google Scholar

Background and Context

Study Purpose

First large-scale empirical study examining the occurrence and value of FinTech innovation using patent filing data from 2003-2017.

Methodology

Applied machine learning to identify and classify FinTech innovations by analyzing 67,948 patent filings across seven technology categories.

Data Sources

Used USPTO Bulk Data Storage System (BDSS) patent data combined with stock market returns to measure innovation value.

Rapid Growth in FinTech Patent Applications Over Time

  • FinTech patent applications increased approximately fourfold from 2003 to 2017
  • Growth acceleration particularly rapid between 2010-2014
  • Demonstrates dramatic rise in FinTech innovation activity over the study period

Distribution of FinTech Innovation Across Categories in 2017

  • Cybersecurity remains dominant but declining from 70% in 2003 to 52% in 2017
  • Mobile transactions grew significantly to become second largest category at 22%
  • Blockchain emerged as fastest-growing new category since 2015

Private Value of Different FinTech Categories to Innovators

  • Blockchain innovations provide highest median value of $98.1M to innovators
  • Cybersecurity and robo-advising also generate substantial value
  • Data analytics shows negative median value, indicating higher risk

Industry Value Impact of FinTech Innovation Types

  • IoT innovations create highest positive value for financial sector ($18.3B median impact)
  • Data analytics and mobile transactions show largest negative industry impacts
  • Demonstrates varying disruptive effects across different FinTech categories

Innovation Activity by Different Types of Firms

  • Individual inventors lead FinTech innovation with 39.7% of patent applications
  • Public firms account for 37.3% while private firms contribute 23.0%
  • Shows significant role of non-traditional innovators in FinTech development

Contribution and Implications

  • First comprehensive empirical analysis of FinTech innovation value using patent data
  • Demonstrates blockchain and IoT innovations create highest value for financial sector
  • Shows market leaders can mitigate negative effects through R&D investment
  • Highlights importance of both traditional and non-traditional innovators in FinTech development

Data Sources

  • Growth Chart: Based on Figure 1 Panel A normalized patent application frequencies
  • Category Distribution: Based on Figure 2 stacked area chart data for 2017
  • Private Value Chart: Based on Table 7 median values by innovation category
  • Industry Impact Chart: Based on Table 9 median industry value effects
  • Firm Types Chart: Based on Table 4 FinTech innovation activity by innovator type