Why Incumbents Should Care–The Repercussions of FinTechs on Incumbent Banks

Authors

Timo Phillip Böttcher, Technical University of MunichFollow
Rafi Al Attrach, Technical University of MunichFollow
Florian Bauer, Technical University of MunichFollow
Jörg Weking, Technical University of MunichFollow
Markus Böhm, Technical University of MunichFollow
Helmut Krcmar, Technical University of MunichFollow

Paper Type

FP

Paper Number

416

Abstract

Startups play a significant role in the digital transformation of ecosystems. In the financial ecosystem, these startups are called FinTechs, a term representing the combination of financial services and digital technology. Technological innovations, such as artificial intelligence and blockchain, enable disruptive innovations in the financial ecosystem, potentially replacing incumbent firms. Based on this disruptive potential, we hypothesize negative repercussions of FinTech success on incumbent banks. We conduct an event study of 152 European FinTech funding rounds in 6 years to test our hypotheses. We test the repercussions of these events on the market capitalization of 30 incumbent European banks. The results support our hypothesis that FinTechs’ funding rounds have negative repercussions on incumbents’ market capitalization. Our quantitative results show that the success of FinTechs challenges investors' expectations of the future success of incumbents. Hence, incumbents must invest in digital services themselves or collaborate with FinTechs.

Recommended Citation

Böttcher, Timo Phillip; Al Attrach, Rafi; Bauer, Florian; Weking, Jörg; Böhm, Markus; and Krcmar, Helmut, "Why Incumbents Should Care–The Repercussions of FinTechs on Incumbent Banks" (2021). PACIS 2021 Proceedings. 11.
https://aisel.aisnet.org/pacis2021/11