The FinTech industry accounts for  7.1% of the global startup ecosystem, making it no. 1 globally in terms of the number of startups. Even the most valued unicorn in the world is a FinTech startup called Ant Financial (US$150B) of the Alibaba group. It begs the question: What are the key factors that led to the rise of the FinTech startup ecosystem?

To find our answers, we will focus on research carried out by Barbara Brandl and Lars Hornuf in Frontiers in Artificial Intelligence

FinTech startups are notorious for developing new business models that create challenges for lawmakers to ensure security and public trust in the system. Examples of some significant regulatory changes are the PSD-I and PSD-II in Europe that were launched for the new segment of companies in the BFSI sector, i.e. Payment Service Provider (PSPs), that enabled non-banking entities to provide payment services to individuals and businesses ensuring a fast and transparent payment experience. 

Let us take a look at the German FinTech market in terms of transactions.

1). Traditional Banks were found reluctant towards the technology advancement and restricted themselves to the payment system niche where they came up with Paydirekt (a digital payment system available to customers of 1400 German banks) and RTI (A pan-Europe instant payment system launched by 40 European banks in 2017). 

2). Even in this constantly changing environment, M&A activities were a rare occurrence between banks and FinTech startups.

3). The relation of venture capital investments was directly proportional to the number of internet users in the corresponding market. Venture Capital investments accumulated in the scenarios where regulations were limiting Banks more as compared to FinTech startups. 

4). An alliance between a bank and a FinTech in terms of acquisition is established only when the bank is planning to define a digital strategy to market itself and employ a Chief Digital Officer.

A startup is as good as its founders; hence, the research also focused on the FinTech startups’ founders though finding such data was not easy as quite a few of them were spin-offs of other different categories than FinTech. The most notable would be the crowdfunding startups which were the spin-offs of music and sports clubs where they used the platform for raising money for their activities. 

The study focused on some key parameters that the founders of a FinTech startup tend to have in common.


It is sometimes assumed that education decides in which field the person will make a career. However, contrary to this popular belief, researchers found that most FinTech founders belonged to the business administration, who are more competent in constructing business models. Apart from business administration, the remaining founders had an educational background in IT, Law, Media, Science & Engineering, etc.

Former Employers

The former employers also influence a person to start a FinTech company. These could give the founder a better insight into the IT infrastructure, working culture, and traditional system’s gaps. 

A significant chunk of FinTech founders were ex-employees in the Banking & Financial Services industry. The remaining founders were having a professional background in Consulting, IT, Law, Media, University or Incubation and other industries.

Access to a Certain Technology

It includes three scenarios; First can be taken as the investments or the acquisition of one firm into another. Second, a tie or alliance of banks and other financial institutions with a company into tech-space to enable its transactions or form a pool of resources. The third is a spin-off of a well-established organization.

Results of the research

1). Major foundations in FinTech were established after the financial crisis. As banks could not lend money freely, businesses were unable to support their daily business activities.

2). Unlike other science and technology-driven sectors that are driven by innovation centres in different universities, the business and innovation in a FinTech startup are driven by the specific needs of customers

3). A look into the M&A activities in the FinTech space gives an idea about the kinds of the alliance formed between FinTechs and traditional players. The study shows that 74% of the alliances were strategic partnerships where only transaction fees were exchanged to get any specific service or technology backing. The remaining 26% include spin-offs (7%) and contractual links (19%) that included investments. The strategic partnerships prevailed because of lacking resources, such as when FinTech banks that are not having any proper banking license would collaborate with traditional banks to provide their customers with BaaP (Banking as a Platform) or BaaS (Banking as a Service).

4). The appropriability regime (the scope in which knowledge and innovations can be protected from imitators, i.e. ability to take possession of knowledge)  is the ease of gaining profits from the intellectual property for the innovator of the product or technology. It usually results in a tight or weak regime. A tight regime of appropriability implies easy protection of intellectual property, and a weak regime of appropriability implies an absence of easy protection of intellectual property. 

The B2B software FinTechs that provides services to businesses come under the weak regime category as they may not patent their software, but they can keep the source code secret while giving the licence to the user. The B2C based FinTech lacks the tightness in the regime when it comes to protecting the knowledge nullifying the monopoly and increasing the competition.

5). Banks’ working structure still depends on decades-old IT infrastructure and they generally refrain from setting up the technologies on their own or acquiring the startups with a tech-richness. However, to serve their clients, they choose the path of strategic partnerships that is low cost and works for them.


There is a lot to come in the financial services industry in terms of technology that will benefit all its stakeholders, i.e., companies, government and customers. FinTech as a concept originated from a need for simplification in the complex financial industry for people to participate and enable the customers to manage their financial matters by themselves. The birth of new and the advancement of old technologies through innovation will prevail in the long run as individuals and businesses’ needs change with time. Capable innovators will identify such needs ensuring their fulfilment, and it will not be stopped by the monopoly of the traditional working path or any political pressure.

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