6. The Fintech Innovation Cycle

Joseph Schumpeter, an influential twentieth-century economist, posited that innovation creates economic vitality through a process of “creative destruction,” the replacement of old ideas with new entrepreneurial ones. But he also stated that this process did not happen in a straight line—more like a series of explosions. Later scholars built the theory of the innovation S-curve, where new innovations begin slowly as markets become accustomed to the new products and services, before a later takeoff phase. The small business fintech innovation cycle was characterized by an energetic first phase with hundreds of new entrants. The second phase, takeoff, did not occur as anticipated. The banks woke up, entered the market, and invested in technology internally and through partnerships. New non-bank platforms such as Amazon, Square, and PayPal also entered the lending market and will likely influence the ultimate path of the fintech innovation cycle.