Faculty of law blogs / UNIVERSITY OF OXFORD

The Emergence of the Global Fintech Market: Economic and Technological Determinants


Lars Hornuf
Professor of Business Administration at the University of Bremen
Christian Haddad


Time to read

2 Minutes

In recent years, digitization and the Internet have turned traditional segments of the financial sector upside down. When it comes to financing a business project or a fancy wedding, fintech companies are happy to broker loans to both companies and private individuals. Equity crowdfunding portals have taken over some of the business activities that were previously undertaken by business angels or government agencies. Asset management of all income classes is increasingly done by computer algorithms instead of human fund managers. Nonetheless, everyone can nowadays become a fund manager on social trading platforms. People pay their coffee using eWallets on their smartphone that entail a cryptocurrency that is no longer issued by a central bank, but is granted by miners that provide the computer power to keep the virtual currency alive.

Prior research on fintech activities has mostly focused on specific fintech sectors or business models. In our article, ‘The Emergence of the Global Fintech Market’, we provide the first comprehensive overview of market developments in 64 different countries. By categorizing fintechs in line with the value chain of a traditional bank—financing, asset management, payment, and other business activities—we show that in terms of new startup formations financing has become the most important segment of the emerging fintech market, followed by payment, other business activities, and asset management. We find that globally the United States lead the way in this new market. In Europe, the largest fintech markets are found in the United Kingdom, Germany and France. Furthermore, we document an upsurge in fintech startups following the financial crisis, as the number of fintech startups founded in 2010 was twice as large as in 2008.

We also examine why some jurisdictions have a larger fintech market than others. In particular, we analyse several economic and general technological determinants that have encouraged fintech startup formations over the period from 2005 to 2015. We find that countries witness more fintech startup formations when capital markets are well-developed, the latest technology is readily available, and people possess more mobile telephone subscriptions. Moreover, we demonstrate that larger labour markets are positively associated with the supply of entrepreneurs in the fintech industry, whereas the unemployment rate is not. Hence, for fintech activities to flourish it not only suffices to have a demand for the digitalization of certain financial products; specialized entrepreneurs who can develop them are also needed.

While in many jurisdictions there is currently no systemic risk resulting from fintechs in most of the market segments due to the small volumes they generate, some segments have already grown large. For example, the marketplace lending portal Lending Club has funded loans of over 22 billion USD as at the end of 2016. In addition, refinancing these loans through securitization has open up new market segments. However, the risk arises that loans will not be properly priced in the context of securitization and related tranching. Some investors might be interested to buy tranches of securities that pose a higher risk than their rating and interest rate would indicate. Such a development was already observed after the turn of the millennium and is thought to be a major cause of the last global financial crisis. Future research should therefore closely track the market development of the various fintech business models and how they might affect financial stability worldwide.

Christian Haddad is a doctoral student at Université de Lille SKEMA Business School.

Lars Hornuf is Associate Professor at Trier University and Affiliated Research Fellow at the Max Planck Institute for Innovation and Competition.


With the support of