Top

Published in:

2021 | OriginalPaper | Chapter

3. A Taxonomy of FinTech Innovation

Authors : James Bowden, Timothy King, Dimitrios Koutmos, Tiago Loncan, Francesco Saverio Stentella Lopes

Published in: Disruptive Technology in Banking and Finance

Publisher: Springer International Publishing

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

This chapter provides a detailed overview of the importance of innovation in the financial sector and highlights key areas of FinTech growth. It is divided into two main parts. In Part 1: Introduction to Innovation we begin by outlining an important role for innovation in driving economic change, based on the seminal work of (Schumpeter, J. A. (1939). Business cycles (Vol. 1, pp. 161–174). New York: McGraw-Hill.) and his concept of ‘circular flow’, which attempts to explain how innovation can be a driver of economic change. Having established a theoretical importance for innovation as a harbinger of economic change and development, it then proceeds to discuss the role of innovation in the financial industry including the main drivers of innovation and channels through which innovation can improve economic welfare. In Part 2: A Taxonomy of FinTech Innovation based on Patents. the second half of the chapter focuses on identifying and discussing the major areas of FinTech based innovation. We begin by identifying key area of FinTech development based on worldwide patents filed with the United States Patent and Trademark Office (USPTO). From the patents data we identify four broad areas of FinTech development and then proceed to discuss FinTech development within these four areas.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

previous chapter A Historical Perspective on Disruptive Technologies

next chapter Cryptocurrency Mining Protocols: A Regulatory and Technological Overview

Google Ngram Viewer is an online search engine which, at the time of writing, plots the annual frequencies with which strings of characters are found in Google’s text corpora between 1500 and 2019: https://books.google.com/ngrams/graph?content=FinTech.

It should be noted that the 1986 figure here is based on data from the British Bankers’ Association (BBA), whereas the 2019 data is from the Office of National Statistics (ONS).

The number of LINK ATM machines (an interbank network of ATM machines that accounts for virtually all cash machines in the United Kingdom) increased from 24,574 in 1998 to 70,588 in 2015 (LINK, 2021).

In Europe, for example the number of ATM machines decreased declined by almost fourteen thousand between 2016 and 2018 (De Best, 2021). https://www.statista.com/statistics/445076/transactions-at-atms-in-link-network-in-the-united-kingdom/.

The Open Banking initiative in the UK also resulted from the outcome of an investigation into the retail banking market by the Competition and Markets Authority (CMA) (UK Government, 2021).

As a result of this, consumers may be better able to switch to banking accounts and services that improve their financial wellbeing. For example, in a CMA survey conducted by GfK NOP (2015), 8% of respondents claimed to have switched providers within the last three years, compared to 45% for car insurance and 31% for energy.

Although not as quickly as.

Comparatively, the number of firms engaged in the Open banking ecosystem across Europe is lagging. As of October 2020, there were 36 such firms in Germany, 18 in France, 9 in Spain and 6 in Italy (Chatenay, 2021).

The Federal Reserve define electronic payments as being bank account number payments, online banking bill pay and payment services such as PayPal.

Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica: Journal of the Econometric Society, 323–351.

Armelius, H., Guiborg, G., Levin, A. T., & Söderberg, G. (2020). The rationale for issuing e-krona in the digital era. Sveriges Riksbank Economic Review,2(2020), 6–18.

Arner, D. W., Barberis, J., & Buckley, R. P. (2016). The emergence of Regtech 2.0: From know your customer to know your data. Journal of Financial Transformation,44, 79–86.

Bank for International Settlements. (2021). Central bank digital currencies: foundational principles and core features. https://www.bis.org/publ/othp33.pdf. Accessed 24 March 2021.

Beck, T., Chen, T., Lin, C., & Song, F. M. (2016). Financial innovation: The bright and the dark sides. Journal of Banking & Finance,72, 28–51.CrossRef

Bertrand, M., & Kamenica, E. (2018). Coming apart? Cultural distances in the United States over time (NBER Working Papers No. 24771). National Bureau of Economic Research, Inc.

Bharadwaj, P., & Suri, P. (2020). Improving financial inclusion through digital savings and credit. AEA Papers and Proceedings,110, 584–588.CrossRef

Blind, K., & Jungmittag, A. (2008). The impact of patents and standards on macroeconomic growth: A panel approach covering four countries and 12 sectors. Journal of Productivity Analysis,29(1), 51–60.CrossRef

Boar, C., Holden, H., Wadsworth, A. (2020). Impending arrival—a sequel to the survey on central bank digital currency. BIS Papers, No 107. https://www.bis.org/publ/bppdf/bispap107.pdf. Accessed 25 March 2021.

Boston Consulting Group. (2020). Southeast Asian consumers are driving a digital payment revolution. https://www.bcg.com/publications/2020/southeast-asian-consumers-digital-payment-revolutions.

Carapella, F., Flemming, J. (2020, November 9). Central bank digital currency: A literature review. Federal Reserve FEDS Notes. https://www.federalreserve.gov/econres/notes/feds-notes/central-bank-digital-currency-a-literature-review-20201109.htm. Accessed 24 March 2021.

Chatenay, V. (2021, January 14). The UK’s open banking regime has turned three years old. Business Insider. https://www.businessinsider.com/uk-open-banking-regime-celebrating-three-years-2021-1?r=US&IR=T. Accessed 23 March 2021.

Chen, M. A., Wu, Q., & Yang, B. (2019). How valuable is FinTech innovation? The Review of Financial Studies,32(5), 2062–2106.CrossRef

Cheung, E. (2017, December 21). $24 Million iced tea company says it’s pivoting to the blockchain, and it’s stock jumps 200%. CNBC News. https://www.cnbc.com/2017/12/21/long-island-iced-tea-micro-cap-adds-blockchain-to-name-and-stock-soars.html. Accessed 27 March 2021.

CMA. (2021). Consultation launched on the future governance of open banking. https://www.gov.uk/government/news/consultation-launched-on-the-future-governance-of-open-banking. Accessed 24 March 2021.

Cornelli, F., Gambacorta, R., Wardrop, & Ziegler, T. (2020). Finech and big tech credit: A new database (BIS Working Papers No. 887).

Crespi, G., & Zuniga, P. (2012). Innovation and productivity: Evidence from six Latin American countries. World Development,40(2), 273–290.CrossRef

Das, S. R. (2019). The future of FinTech. Financial Management,48(4), 981–1007.CrossRef

De Best, R. (2021). LINK ATM transaction volume in the UK 2014–2020, per month. https://www.statista.com/statistics/445076/transactions-at-atms-in-link-network-in-the-united-kingdom/. Accessed 16 March 2021.

Demirel, P., & Mazzucato, M. (2012). Innovation and firm growth: Is R&D worth it? Industry and Innovation,19(1), 45–62.CrossRef

Drescher, D. (2017). Recognizing the potential. In Blockchain Basics (pp. 19–25). Apress.CrossRef

Dynan, K. E., Elmendorf, D. W., & Sichel, D. E. (2006). Can financial innovation help to explain the reduced volatility of economic activity? Journal of Monetary Economics,53(1), 123–150.CrossRef

FCA. (2021). Open finance: Feedback statement. https://www.fca.org.uk/publication/feedback/fs21-7.pdf. Accessed 22 March 2021.

Federal Reserve. (2020). Diary of consumer payment choice. https://www.frbsf.org/cash/publications/fed-notes/2020/july/2020-findings-from-the-diary-of-consumer-payment-choice/.

Federation of Small Businesses. (2020). Open Banking held back by lack of trust among small firms on second anniversary of roll-out. https://www.fsb.org.uk/resources-page/open-banking-held-back-by-lack-of-trust-among-small-firms-on-second-anniversary-of-roll-out.html.

Financial Conduct Authority. (2021). Open finance: Feedback statement. https://www.fca.org.uk/publication/feedback/fs21-7.pdf.

Financial Inclusion Insights. (2021a). Kenya. http://finclusion.org/country/africa/kenya.html#dataAtAGlance.

Financial Inclusion Insights. (2021b). Tanzania. http://finclusion.org/country/africa/tanzania.html.

Fintech Futures. (2020). South African association predicts the death of the cheque. https://www.fintechfutures.com/2020/10/south-african-association-predicts-the-death-of-the-cheque/.

Fortune Business Insights. (2020). Big data technology market. https://www.fortunebusinessinsights.com/industry-reports/big-data-technology-market-100144.

Gambacorta, L., Yiping, H., Qiu, H., & Wang, J. (2019). How do machine learning and non-traditional data affect credit scoring? New evidence from a Chinese fintech firm (BIS Working Papers No. 384).

GfK NOP. (2015). Personal current account investigation: A report for the competition and markets authority by GfK NOP. https://assets.publishing.service.gov.uk/media/555cabd0ed915d7ae2000007/PCA_Banking_Report.pdf. Accessed 24 March 2021.

Greenwich Associates. (2018). Financial services industry spends $1.7b per year on blockchain. https://www.greenwich.com/press-release/financial-service-industry-spends-17b-year-blockchain. Accessed 27 March 2021.

Griffith, R., Huergo, E., Mairesse, J., & Peters, B. (2006). Innovation and productivity across four European countries. Oxford Review of Economic Policy,22(4), 483–498.CrossRef

Grossman, G. M., & Helpman, E. (1991). Innovation and growth in the global economy. MIT press.

Guibaud, S. (2016). How to develop a profitable, customer-focused digital banking strategy: Open banking services and developer-friendly APIs. Journal of Digital Banking,1(1), 6–12.

Hagedoorn, J. (1996). Innovation and entrepreneurship: Schumpeter revisited. Industrial and Corporate Change,5(3), 883–896.CrossRef

Hasan, I., & Tucci, C. L. (2010). The innovation–economic growth nexus: Global evidence. Research Policy,39(10), 1264–1276.CrossRef

Hinchcliffe, R. (2020, October 7). ING’s CEO urges regulators to give banks a PSD2 equivalent. FintechFinTech Futures. https://www.fintechFinTechfutures.com/2020/10/sibos-2020-ings-ceo-urges-regulators-to-give-banks-a-psd2-equivalent/. Accessed 24 March 2021.

Inekwe, J. N. (2015). The contribution of R&D expenditure to economic growth in developing economies. Social Indicators Research,124(3), 727–745.CrossRef

Innovate Finance. (2021). The UK retains its crown as Europe’s capital for FinTechFinTech investment. https://www.innovatefinance.com/news/the-uk-retains-its-crown-as-europes-capital-for-fintechFinTech-investment/. Accessed 21 March 2021.

Jain, A., & Jain, C. (2019). Blockchain hysteria: Adding “blockchain” to company’s name. Economics Letters,181, 178–181.CrossRef

Morgan, J. P. (2019). E-commerce payments trends: China. https://www.jpmorgan.com/merchant-services/insights/reports/china.

Kalifa, R. (2021). Kalifa review of UK FintechFinTech. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/971370/KalifaReviewofUKFintechFinTech.pdf. Accessed 12 March 2021.

Kelly, J. (2019, September 24). Blockchain: Disillusionment descends on financial services. Financial Times. https://www.ft.com/content/93140eac-9cbb-11e9-9c06-a4640c9feebb. Accessed 28 March 2021.

King, T., & Koutmos, D. (2021). Herding and feedback trading in cryptocurrency markets. Annals of Operations Research,300(1), 79–96.CrossRef

Koutmos, D. (2020). Market risk and Bitcoin returns. Annals of Operations Research,294, 453–477.CrossRef

Koutmos, D., King, T., & Zopounidis, C. (2021). Hedging uncertainty with cryptocurrencies: Is Bitcoin your best bet? Journal of Financial Research, in press.

Kogan, L., Papanikolaou, D., Seru, A., & Stoffman, N. (2017). Technological innovation, resource allocation, and growth. The Quarterly Journal of Economics,132(2), 665–712.CrossRef

Laeven, L., Levine, R., & Michalopoulos, S. (2015). Financial innovation and endogenous growth. Journal of Financial Intermediation,24(1), 1–24.CrossRef

LINK. (2021). Statistics and trends. https://www.link.co.uk/about/statistics-and-trends/. Accessed 16 March 2021.

Merton, R. C. (1992). Financial innovation and economic performance. Journal of Applied Corporate Finance,4(4), 12–22.CrossRef

Money Advice Service. (2016, May). The squeezed segment—Ethnographic research report.

Open Banking. (2020). Real demand for open banking as user numbers grow to more than two million. https://www.openbanking.org.uk/about-us/latest-news/real-demand-for-open-banking-as-user-numbers-grow-to-more-than-two-million/. Accessed 22 March 2021.

Open Banking. (2021). Three years since PSD2 marked the start of open banking, the UK has built a world-leading ecosystem. https://www.openbanking.org.uk/about-us/latest-news/three-years-since-psd2-marked-the-start-of-open-banking-the-uk-has-built-a-world-leading-ecosystem/. Accessed 22 March 2021.

Philippon, T. (2020). On fintech and financial inclusion (BIS Working Papers No. 841). https://www.bis.org/publ/work841.htm.

PWC. (2020). Financial services technology 2020 and beyond: Embracing disruption. https://www.pwc.com/gx/en/financial-services/assets/pdf/technology2020-and-beyond.pdf. Accessed 28 March 2021.

RBR. (2020). Global ATM market and forecasts to 2025.

Research and Markets. (2020). Global online payment methods 2020 and COVID-19’s impact.

Rhodes, C. (2020). Bank branch and ATM statistics. https://commonslibrary.parliament.uk/research-briefings/cbp-8570/. Accessed 20 March 2021.

Romer, P. M. (1990). Endogenous technological change. Journal of political Economy, 98(5, Part 2), S71–S102.

S&P Global. (2020). Bank disruptors doubling down on mobile payments in China. https://www.spglobal.com/marketintelligence/en/documents/bank_disruptors_doubling_down_on_mobile_payments_in_china.pdf.

Schumpeter, J. A. (1939). Business cycles (Vol. 1, pp. 161–174). McGraw-Hill.

Shiller, R. J. (2013). Capitalism and financial innovation. Financial Analysts Journal,69(1), 21–25.CrossRef

Sironi, P. (2016). FinTechFinTech innovation: From robo-advisors to goal based investing and gamification. Wiley.

Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics,70(1), 65–94.CrossRef

Statista. (2021). https://www.statista.com/statistics/1081846/tanzania-mobile-money-transactions-by-operator/#:~:text=The%20mobile%20money%20sector%20in,the%20six%20mobile%20money%20services.

Stokey, N. L. (1995). R&D and economic growth. The Review of Economic Studies,62(3), 469–489.CrossRef

Thakor, A. V. (2020). FintechFinTech and banking: What do we know? Journal of Financial Intermediation, 41.

The Economist. (2020, October 10). The digital surge: How the digital surge will reshape finance (Finance and Economics ed.).

The Money Advice Service. (2016, May). Money advice service, The squeezed segment.

The World Bank. (2018). What Kenya’s mobile money success could mean for the Arab world. https://www.worldbank.org/en/news/feature/2018/10/03/what-kenya-s-mobile-money-success-could-mean-for-the-arab-world.

Tufano, P. (2003). Financial innovation. Handbook of the Economics of Finance,1, 307–335.CrossRef

UK Department for International Trade. (2019). UK FintechFinTech: State of the nation. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintechFinTech-state-of-the-nation.pdf. Accessed 18 March 2021.

UK Finance. (2020). UK Payment Markets Summary 2020. https://www.ukfinance.org.uk/system/files/UK-Payment-Markets-Report-2020-SUMMARY.pdf.

Ulku, H. (2007). R&D, innovation, and growth: Evidence from four manufacturing sectors in OECD countries. Oxford Economic Papers,59(3), 513–535.CrossRef

Valuates Reports. (2020). Peer-to-Peer (P2P) lending market size is expected to reach USD 558.91 billion by 2027—valuates reports. https://www.prnewswire.com/news-releases/peer-to-peer-p2p-lending-market-size-is-expected-to-reach-usd-558-91-billion-by-2027---valuates-reports-301064236.html.

Verspagen, B. (2005). Innovation and economic growth. In The Oxford handbook of innovation.

Title: A Taxonomy of FinTech Innovation
Authors: James Bowden
Timothy King
Dimitrios Koutmos
Tiago Loncan
Francesco Saverio Stentella Lopes
Publisher: Springer International Publishing
Book: Disruptive Technology in Banking and Finance
Print ISBN: 978-3-030-81834-0

Electronic ISBN: 978-3-030-81835-7

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-030-81835-7_3