• CFRED CUHK Law

The Rise of Fintech: A Cross-Country Perspective

Oskar Kowalewski, IESEG School of Management and Institute of Economics, Polish Academy of Sciences;

Paweł Pisany, Institute of Economics, Polish Academy of Sciences

-- Fintech (financial technology) shapes conditions for the financial sector in both developed and emerging economies. Are development paths and role of fintech startups the same in different countries? Perhaps fintech in relatively wealthy economies is something else than fintech in emerging economies? In our empirical study: "The Rise of Fintech: A Cross-Country Perspective", we investigate the determinants of fintech startups formation and potential differences between emerging and developed markets. We apply both a traditional econometrics approach (random effects negative binomial model - RENB) as well as some machine learning algorithms (ML) with specific tools that allow us to explain and interpret the economic mechanism of fintech startups formation.


Using data for 50 countries, we confirm the vital positive role of the availability of financing for the fintech sector. Moreover, we document the positive role of mobile phones and fixed broadband subscriptions’ growth in popularity, which is in line with relevant existing literature (Haddad and Hornuf, 2019). We also show that the quality of research, and particularly university-industry collaboration, can contribute to the formation of innovative financial companies.


Our results confirm that regulatory factors are important. In particular, we argue that even when fintech startups are established, they sometimes cannot develop their activities because of regulatory burdens. We indicate that, unsurprisingly, a friendly legal environment helps innovation in financial markets. On the other hand, the regulator needs to be aware that some entrepreneurs may use the fintech label as a tool for regulatory arbitrage while offering financial services. Effective policy towards financial innovation demands a proper balance between supervision, hard law provisions and soft law regulation and recommendations. Moreover, the results of our ML models suggest that improving academia-business relations helps, but only after reaching a certain threshold. Thus, it is worthwhile for policymakers to be patient in working on that aspect.


The results of our study suggest that there are some common factors driving the development of fintech companies in both developed and emerging markets. Among these, we find a positive impact of technology-related factors and quality of university-industry cooperation. On the other hand, our analysis reveals some differences in the paths of fintech sector development between the two countries groups. An important difference is the relation between fintech companies and banks. Our results show that the interaction between the banking sector and fintech companies may be described as coopetition (mix of cooperation and competition), but with predominant cooperation in developed economies and predominant competition in emerging economies. We claim that banks with high market power treat fintech companies as a source of interesting ideas to boost effectiveness or mobile services quality. Thus, banks in developed markets support fintech startup formations, for example, by establishing accelerators.


Lastly, we show that, in general, a young demographic structure supports the fintech company formation process. However, we find some differences between developed and developing countries. In developed economies, we find that an older population is positively related to the formation of fintech companies. In our opinion, the results confirm that elder people in wealthier societies are willing to adopt innovative financial solutions. Moreover, urbanization has some positive impact on the pace of fintech startups formation, but only in developed markets.

Based on our research, we make four policy recommendations. First, financing for innovative projects in the fintech sector is the key. Indeed, our results suggest that public policies are important, such as grants programs for small innovation companies. Second, public policy should pay attention to proper and effective communication between university and business. Some government-created coordination projects are advisable. Third, policymakers should not perceive fintech companies and banks purely as competitors, but rather foster accelerators organized by banks. Fourth, entrepreneurs may sometimes treat the establishment of fintech companies as a tool for regulatory arbitrage. This situation demands proper, balanced, and careful monitoring and supervision.

Note on Funding

The research discussed above was supported by the National Science Center (NCN), Poland, under grant no. 2019/33/B/HS4/00369.

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