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To FinTech and Beyond

Journal: Review of Financial Studies

Date: 20190501

Author: Goldstein, Itay; Jiang, Wei; Karolyi, G. Andrew

Abstract:
FinTech is about the introduction of new technologies into the financial sector, and it is now revolutionizing the financial industry. In 2017, when the academic finance community was not actively researching FinTech, the editorial team of the Review of Financial Studies launched a competition to develop research proposals focused on this topic. This special issue is the result. In this introductory article, we describe the recent FinTech phenomenon and the novel editorial protocol employed for this special issue following the Registered Reports format. We discuss what we learned from the submitted proposals about the field of FinTech and which ones we selected to be completed and ultimately come out in this special issue. We also provide several observations to help guide future research in the emerging area of FinTech.

Link: Google Scholar

Background and Context

The FinTech Revolution

FinTech represents the fusion of finance and technology, revolutionizing the financial industry at an unprecedented pace with new innovations coming primarily from outside traditional banking.

Research Initiative

The Review of Financial Studies launched a special initiative in 2017 using a novel "Registered Reports" format to stimulate academic research on FinTech, receiving 156 research proposals from scholars worldwide.

Scope of Activity

FinTech activities span mobile payments, peer-to-peer lending, crowdfunding, blockchain, cryptocurrencies and robo-investing, with over 50% of customers now using at least one non-traditional financial service provider.

Growth in FinTech Research Proposals by Topic Area

  • Peer-to-peer lending was the dominant research focus with 47 proposals
  • Blockchain and big data were the next most popular categories with around 27-28 proposals each
  • Social media applications had the least research interest with only 4 proposals

Geographic Distribution of FinTech Research

  • Nearly 50% of FinTech researchers were from U.S. institutions
  • China represented the second largest concentration with 11.5% of researchers
  • The research community spans 20 countries, showing the global nature of FinTech innovation

Decline in FinTech Deal Activity Despite Increased Investment

  • FinTech deals peaked at 2,291 in 2015 before declining to 1,187 in 2018
  • Despite fewer deals, total capital raised increased to $54.4 billion in 2018
  • Suggests consolidation and larger deal sizes in the maturing FinTech sector

Growth in FinTech Mortgage Market Share

  • FinTech lenders increased their mortgage market share from 2% to 8% between 2010-2016
  • These lenders process applications 20% faster than traditional institutions
  • Demonstrates the growing competitive threat to traditional mortgage lenders

Bitcoin Transaction Activity Analysis

  • 46% of Bitcoin transactions were associated with illegal activities
  • The illegal share has declined over time with mainstream adoption
  • Emergence of more opaque cryptocurrencies has shifted illegal transactions away from Bitcoin

Contribution and Implications

  • First comprehensive academic analysis of FinTech innovation using a novel "Registered Reports" format to encourage research in emerging areas
  • Identified key challenges in blockchain implementation, competitive dynamics between traditional and FinTech lenders, and the role of big data in financial services
  • Highlighted the need for balanced regulation that promotes innovation while managing risks in the evolving financial technology landscape

Data Sources

  • Topic distribution chart based on analysis of 156 research proposals described in Section 3
  • Geographic distribution data derived from author affiliations analysis in Section 3
  • Deal activity trend based on FinTech Global report data cited in Section 1
  • Mortgage market share data from Fuster et al. (2019) findings discussed in Section 4.2
  • Bitcoin transaction analysis based on Foley, Karlsen, and Putnins (2019) results in Section 4.1