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Adoption of FinTech Services in the Banking Industry

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 Adoption of FinTech Services
in the Banking Industry

Noofa Bureshaid, Kevin Lu, and Adel Sarea

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1 Abstract Today, all financial services aspect seems to be touched by technolog-
2 ical forces. FinTech development is in its early stages; many researchers and prac-
3 titioners believe that it will shape and define the financial industry’s future. The
4 researcher intends to examine the determinant of FinTech services adoption among
5

7
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bank consumers. In line with the literature, the study proposed applying a theoretical
framework developed from existing literature by using variables associated with the
Technology Acceptance Model (TAM), and Diffusion of Innovation Theory (DOI) to
8 test the critical factors that impact the intention to adopt FinTech services. This study
9 also investigates whether the effect of perceived risk on FinTech adoption intention
10 differs depending on the Consumers’ behavior.
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11 Keywords FinTech · Diffusion of innovation theory DOI · Technology acceptance

12 model TAM · Banking industry
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13 1 Background of the Chapter

14 “Portmanteau” means “a large traveling bag opening into two equal parts,” a word
15 used by Gomber et al. (2018) describing “FinTech,” a buzzword within the financial
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16 industry used to describe financial services introduced by using modern technology.

17 While Leong et al. (2017) used the term “broad umbrella” to refer to the widespread
18 of FinTech disruptive technologies in one of the most highly regulated sectors in the
19 twenty-first century. While researchers are at a consensus that the fourth industrial
20 revolution has started (Yoon et al., 2016), finding a widely standard definition of
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21 FinTech in the literature is challenging (Gimpel et al., 2018; Ryu, 2018). Until date,
22 there is no universal definition of FinTech in the literature; the evolutionary changes

N. Bureshaid (B) · K. Lu
College of Business, Arts and Social Sciences, Brunel University, London, UK
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e-mail: Noofa.bureshaid@brunel.ac.uk.com
A. Sarea
College of Business and Finance, Ahlia University, Manama, Bahrain

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 125
A. Hamdan et al. (eds.), Applications of Artificial Intelligence in Business,
Education and Healthcare, Studies in Computational Intelligence 954,
https://doi.org/10.1007/978-3-030-72080-3_7

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 126 N. Bureshaid et al.

23 are so rapid that even creating a relatively constant definition is challenging. More-
24 over, we are still at the beginning of an exceptional phase where financial institutions
25 are trying to keep up with the changes. The regulators are trying to formulate a clear
26 scope of the activity (Guzman et al., 2018; Gomber et al., 2018).
27 Furthermore, FinTech movement shares some features of all other disruptive inno-

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28 vations, yet FinTech has its characteristics that are specific to the finance industry.
29 Consumer usage patterns of new digital devices (such as smartphones, smartwatches,
30 and tablet) and media (such as software, digital video, and digital images) are the
31 main factors used for accessing financial information as well as execution of financial
32 transactions (Yoon et al., 2016). FinTech development has shifted the financial sector

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33 from being traditional intermediation originators “brick and mortar”, to online inter-
34 mediaries (Buchak et al., 2018). Today, customers demand intelligent and friendly use
35 of financial services despite location and time at a continuously more affordable cost
36 (Guo et al., 2019; Gomber et al., 2018). FinTech’s ability to remove inconvenience
37 experiences for financial services users is a significant advantage, although studies
38

39

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on FinTech are still lacking (Guo et al., 2019; Varga, 2017). Moreover, although
researchers (Lynn et al., 2019; El-Masri et al., 2019; Al Romaihi, 2021) predict that
FinTech is likely to change the way financial operations including trading in stocks,
41 lending in banks, compliance, managing risks, trading in shares, insurance activities,
42 and payments. There is some caution against rushing to conclusions about FinTech
43 services and its utility. For instance, serious concerns have been raised about the
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44 risks involved in adopting FinTech services by different users, such as consumers,
45 investors, and financial service firms (KPMG, 2019). To understand the challenges,
46 it is necessary to know how the concept of FinTech is being defined, what is the
47 current level of understanding of this concept, what factors critically affect FinTech
and its adoption, what theoretical base exists in the literature. What gaps exist in
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48

49 the literature that needs to be addressed. In the literature, there is hardly any model,
50 theory or knowledge that could be used effectively by banks to tackle this problem
51 (Gomber, 2018). This research investigates this critical issue.
52 This research can also provide insights and a comprehensive understanding of
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53 consumers’ adoption of attention for FinTech services. From a dynamic point of view,
54 currently, millennials are less financially capable than their elders. As time goes on,
55 millennials’ financial capability will gradually strengthen as they will become the
56 primary bank consumers (Gomber, 2018; Prime & Carr, 2012). Thus, the study aims
57 to investigate the factors that influence bank consumers to adopt FinTech services to
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58 help the bank meet the demand of the millennial generation in the future.

59 2 Literature Review
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60 Literature shows that FinTech services are an innovation that will revolutionist the
61 financial sector. The financial institution makes huge investments. For example, the
62 world scale of investment in FinTech increases sharply to approximately 930 million
63 USD in 2008. Not to mention that FinTech investment has grown by more than three

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 Adoption of FinTech Services in the Banking Industry 127

64 times within five years to reach 2.97 billion USD in 2013 (Yoon et al., 2016). FinTech
65 introduce new technology that has the potential of bringing a paradigm shift in the
66 lifestyle of the customers, in terms of providing a better user experience of achieving a
67 fast, seamless, anytime and anywhere banking (Guo et al., 2019; Buchak et al., 2018;
68 Gomber et al., 2018). While FinTech services are purported to provide tremendous

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69 support and advantages to both the consumers and the financial institutions, there
70 is a contradiction found in the literature regarding the adoption of FinTech services
71 despite the advantages it is expected to provide (Steenis, 2019; KPMG, 2019; Hu
72 et al., 2019; Lee & Shin, 2018). This contradiction if not addressed at the early stage
73 of diffusion of FinTech services, there might evolve a situation wherein the new

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74 introduced FinTech services could be used only to a limited extent by consumers
75 without exploiting its full strength (Hu et al., 2019; Lee & Shin, 2018; Seyadi &
76 Elali, 2021). Literature shows that FinTech services are still a diffusing technology
77 and are infancy (Hu et al., 2019; Lee & Shin, 2018). For example, Cloud computing
78 has failed to take off despite the promising start, as the users have not adopted it
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to the extent expected (Bhowmik, 2017; Bogdan et al., 2015; Rahim, 2021). Under
these circumstances, it is not clear what factors affect FinTech services and the extent
to which those factors can be manipulated for greater extent for the consumers and
82 the financial institutions. Thus this research has reviewed the current literature about
83 FinTech as a new innovation and the associated factors that have a bearing on the
84 implementation of FinTech services.
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85 2.1 Concept of FinTech

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86 Despite the growth of FinTech, the relevant academic research in the FinTech context
87 has been only emerged in the past few years. According to the web of science, during
88 2015 the number of publications on FinTech was only 7 journal articles. While in
89 2018 the number of publications falls under FinTech has increased to reach a total
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90 of 120 publications that are relevantly distributed among the fields of business, such
91 as economics, finance, and management or low and computer science (Fig. 1).
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Fig. 1 Number of academic researches in FinTech context (queried in February 2019)

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 128 N. Bureshaid et al.

92 This is remarkable since the term itself has recently attracted broad attention.
93 This argument is also supported by the simple query taken by Google trends in
94 2014, which reveals that FinTech as a term emerged on a broad scale and made the
95 transformation of the financial industry visible (Alt et al., 2018; Arner et al., 2016;
96 Al-Afifi, 2019; Merza Radhi and Sarea, 2019; Awad et al., 2021)

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97 The word “FinTech” can be originally traced the early 1990s, where it was prob-
98 ably first mentioned Johon Reed, Citicorp’s chairman referring to the “Financial
99 Services Technology Consortium” during a project initiated by Citigroup back then
100 which facilitate technological corporation effort in the context of newly founded
101 “Smart Card Forum” (Puschmann, 2017; Arner et al., 2015). However, 2014 the

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102 term has attracted the focused and the attention of regulators, market participants,
103 where industry growth was sharply increased to reach between US $12 billion and
104 US $197 billion on investments (Puschmann, 2017; Alareeni, 2019; Al kurdi, 2021).
105 “FinTech” as a term encompasses to includes IT innovative financial solutions,
106 financial services providers such as banks and insurance companies. The term also
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108

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refers to the start-up company’s players that emerged after the global financial crisis
and proved away as new industry (Alt et al., 2018; Arner et al., 2016). However, for
this study the term FinTech is used to describe IT innovative financial products and
110 services.
111 To begin with, the definition of FinTech is examined. Table 1 provides an idea of
112 the various definitions provided by researchers in the literature.
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113 The different definitions given in Table 1 are broadly implying that FinTech is
114 a technological innovation that aids in various aspects concerned with finance and
115 finance sector. The definitions also indicate that FinTech can improve the services
116 offered by firms in the finance sector (Aziz & Dowling, 2019).
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Table 1 Definitions of FinTech

# Definition of FinTech Authors
1. A new sector in the finance industry that incorporates the whole Micu and Micu (2016)
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plethora of technology used in finance to facilitate trade, corporate

business or interaction, and services provided in the retail industry
2. “FinTech”, a contraction of “Financial technology”, that refers to Arner et al. (2015)
technology-enabled financial solutions
3. FinTech refers to the application of technology to finance Arner et al. (2016)
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4. FinTech is using software, applications and digital platforms to Morgan et al. (2019)
deliver financial services to the users through digital devices such as
smartphones
5. FinTech refers to technology-enabled innovation in financial European Commission
services
6. FinTech is technologically enabled financial innovation that results KPMG (2019)
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in new business models, products, processes or applications with an

associated material effect on financial markets and institutions and
the provision of financial services

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 Adoption of FinTech Services in the Banking Industry 129

117 2.2 FinTech Services

118 Also, at this point, it is worthwhile to discuss some of the recent examples of FinTech
119 services that have been employed in the financial sector throughout the years to gain
120 knowledge on the extent to which those FinTech services have contributed signif-

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121 icantly to the disruptive of financial services sector by increasing the competition
122 and empowering customers (Lou & Li, 2017). The development of FinTech services
123 started in 1950s from the time when the Automated Teller Machine (ATM) and credit
124 card processing, followed by electronic stock trading and e-commerce (Milian et al.,
125 2019; Puschmann, 2017). At that time each decade has witnessed new technology

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126 that some were just taken for granted. Now, the new generation of FinTech services
127 is built on near-ubiquitous access to the internet through Internet banking, followed
128 by the emergence of mobile phone banking, cloud computing, artificial intelligence,
129 machine learning, and blockchain (Lynn et al., 2019; Lou & Li, 2017). In which it
130 helps to smoothen the Banking business operation (Lynn et al., 2019; Puschmann,
131

132

133
2017; Derbali, 2021).
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Table 2 Provides an Exemplars of FinTech services that have been employed in
the financial sector
134 Some of the main issues that have been found in the literature concerning the uses
135 of FinTech services include threats to user accounts, risks arising out of those threats,
financial losses that could occur due to potential risks, disruptions in the services of
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136

137 ventures, lack of cyber security and internet frauds (e.g. Sumroy et al., 2019; Arner
138 et al., 2016). For instance, there are additional challenges that affect regulators and
139 market participants alike, particularly in balancing the potential benefits of innovation
140 with the possible risks of new approaches. In fact, some researchers complain that
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141 there is less concern in evaluating the risks arising out of using FinTech supported by
142 AI when compared to contemplating its potential gains which usually happens with
143 some new technologies (Sumroy et al., 2019). Moreover, KPMG (2019) informs
144 that regulators are worried about the risks of using FinTech. Risks include those
145 that arise due to technology, cybersecurity, data privacy, consumers’ protection, risk
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146 management and problems concerning money laundering (Aziz & Dowling, 2019;
147 Lou & Li, 2017; Kaplan & Mikes, 2016). Also, KPMG (2019) informs that regulators
148 are worried about the risks of using FinTech. Risks include those that arise due to
149 technology, cybersecurity, data privacy, protection of consumers, risk management
150 and problems concerning money laundering (Aziz & Dowling, 2019; Lou & Li,
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151 2017; Kaplan & Mikes, 2016).

152 2.3 Diffusion and Adoption and of FinTech Services

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153 According to IS researchers, technological innovation adoption is the process that

154 results in the introduction and the use of a process, practice or product (Damanpour &
155 Wischnevsky, 2006). While Rogers (1995) describes the innovation adoption process

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 130 N. Bureshaid et al.

156 by the process in which the decision to adopt innovation and physical acquisition of
157 that specific technology. Moreover, adoption is often associated with the decision to
158 accept an innovation (Zaltman et al., 1973). And the concept of diffusion is often
159 associated with the attempt to spread the innovation using the communication chan-
160 nels to a larger population (Rogers, 1983). For this reason, theories of Technology

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Table 2 FinTech services
# FinTech services and Advantages Limitations Authors
their brief description

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1 Crowdfunding: is a • Used as marketing • Raising money with Lee and Shin (2018),
services that tool for the start-up limited capacity Bohliqa (2015),
empower networks of firm • Losing the Honolulu (2014)
people to control the • Increases the public confidentiality since
creation of new awareness on the the idea is shared
products, media, and brand and product online with others
ideas and are raising • Validate business
funds for charity or
venture capital
ideas through
receiving genuine
feedback on the
DPbefore entrepreneur
pioneers it
• Risk of
implementing the
idea that’s required shared idea before
funding the pioneer does
• Provides financial • Promoting the idea
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support to local required a lot of
small businesses time and effort
and startups through campaigns
• Fear of fraud
2 Crypto-currencies: is • Open code: all • Strong volatility Bunjaku et al.
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a virtual digital information about • Can be used for (2017), Subramanian

currency that operate the transaction is
by using shared in network
cryptography for but without the data
security of the sender and
recipient of the
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money laundry or and Chino (2016)
financing illegal
activities
• Large risk investing
in crypto-currency

coins (anonymous) that should be

• No Inflation considered in the
• Unlimited medium and long
possibility of term
transaction, wallet In this regard, for
holders can pay to example mentioned
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anyone, anywhere that the discounted

and any amount cash value of a
• No boundaries, crypto-currency is
payment made in zero. He further
the system cannot observes the currency
be cancel, fake or lacks a central issuer,
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duplicate and that there is no

• Low operational financial or economic
cost basis for its creation.
• Easy to use
(continued)

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 Adoption of FinTech Services in the Banking Industry 131

Table 2 (continued)
# FinTech services and Advantages Limitations Authors
their brief description
3 Cloud Computing • Cost savings for • Complex data Bhowmik (2017),
Services: “cloud” users security challenges Bogdan et al. (2015)

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refer to larger group • Business continuity • Loss of visibility to
of interconnected • Centralized data key security
computers or network management • Lack of standards
that can be public or • Unlimited storage and regulation
private capacity • Vulnerable to
• Create an easier cyber-attacks

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group collaboration • Internet connection
• Universal access to is required
documents • Unable to work
with low speed
connection
• Only access to
limited features
4 Mobile Banking:
refer to the
interaction of
• Real-time
information to
customer personal
DP• System limitation, Rodrigo and Hwang
such as: tiny
screens and
(2019), Laukkanen
and Kiviniemi(2010)
customer with bank account keypads, battery
through mobile • Location free life, limited
device such as access to personal memory capacity,
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smartphone, digital accounts etc.)
assistant or cell phone • Save time • Inconvenience
authorization due to
PIN changing
• Security threats and
hacking
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161 Acceptance Model (TAM) and Diffusion of Innovation (DOI) Theory have been used
162 to study the framework of diffusion and adoption of FinTech services.
Technology Acceptance Model (TAM): Technology Acceptance Model (TAM)
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163

164 was developed by Davis (1989) in his doctoral thesis, since then the model is widely
165 used by researches due to its usefulness to predict the user intention to adopt the
166 technology by using two constructs PEU and PU to determine the user intention
167 behavioral towards the use of particular technology. Davis’s model has captured
the attention of the IS community (Mathieson et al., 2001). According to Davis
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168

169 (1989), the main purpose of TAM is to truce the basis impact of external variables on
170 internal beliefs, attitudes, and intentions. Davis (1989) also argues that PU and PEU
171 are the most important factors in explaining and predicting technology use, and any
172 additional variables can only contribute little to the explanation of the variance on
173 the internal beliefs of users toward technology acceptance. However, some studies
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174 confirm that external variables are mediated to PU and PEU provide a better under-
175 standing of what influences PU and PEU, and their presence is essential to guides the
176 actions required to influence greater use of technology (Olushola & Abiola, 2017).

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177 Diffusion of Innovation Theory (DOI): Research in diffusion can be traced back
178 to 1960 by the work of Everett Rogers. Since then this theory has been widely
179 applied in researches over the years. Diffusion of Innovation argued that there are
180 four factors influence the spread of new technology; innovation, communication
181 channel, time and social system (Sharma & Mishra, 2014; Alzaneen & Mahmoud,

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182 2019). Rogers has also suggested five constructs in his model; relative advantage,
183 complexity, compatibility, trialability, and observability, and argued that if an inno-
184 vation has these five constructs it is more likely to succeed and adopted by users.
185 According to the “DOI theory”, diffusion of innovation needs to be considered if
186 new technology is invented and introduced.

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187 3 Framework Overview Discussion

188

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Many research supported TAM model as an excellent model in term of explaining
the adoption/ acceptance of IS/IT in general as well as in the context of FinTech
services (Hu et al., 2019; Meyliana & Surjandy, 2019; Stewart & Jürjens, 2018; Lee
191 & Shin, 2018; Raza et al., 2017; Chuang et al., 2016; Kim et al., 2015; Deghash,
192 2019). However, many empirical studies recommend the integration of TAM model
193 with other theories to cope with the rapid changes in technology and to improve the
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194 explanatory power (Yi-Hsuan et al., 2011; Moghaddam and Salehi, 2010; Carter &
195 Bélanger, 2005; Chen et al., 2002). TAM and DOI constructs are similar and comple-
196 ment to each another in term of explaining the adoption of IS/IT (Taherdoost, 2018).
197 Moreover, literature indicate that the constructs employed in TAM model are basi-
cally a subset of perceived innovation characteristic; hence, the integration of TAM
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198

199 and DOI theories could provide an even stronger model than either standing alone
200 (Hu et al., 2019; Meyliana & Surjandy, 2019; Yi-Hsuan et al., 2011; Wu & Wang,
201 2005). Thus, this study employs two major theoretical paradigms, TAM and DOI as
202 a central for this research. Moreover, after reviewing the literature the major theo-
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203 ries and empirical research were synthesized and then a model that blended the Key
204 constructs of FinTech services adoption by the consumer of Bank were proposed.
205 The five constructs of DOI characteristics, namely relative advantage, complexity,
206 compatibility, trialability and observability, and the three constructs of TAM charac-
207 teristics, namely perceived usefulness, perceived ease of use and Intention to adopt
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208 FinTech services were taken with appropriate modifications. Furthermore, literature
209 shows that the third important aspect that raised a concern regarding explaining the
210 consumer intention to adopt technology was the concept of risk that is usually asso-
211 ciated with any new technological innovation (Meyliana & Surjandy, 2019; Boz &
212 Özen, 2019; OECD, 2019; Lee & Shin, 2018; Ryu, 2018; Muñoz-Leiva et al., 2017;
Kim et al., 2015; Afana & El Agha, 2019). Amongst the different theories that have
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214 been used in the literature that explain how risk is associated with new technological
215 innovation, in which protection motivation theory (PMT) was found to be useful in
216 the context of FinTech and supported in the literature (Jansen & Schaik, 2017; Boss
217 et al., 2015; Vance et al., 2012; Jamile & Diab, 2021).

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218 Several studies have used theories and models of acceptance and adoption to
219 study technology applications, TAM and DOI are among wieldy used applications.
220 In the proposed model, TAM is used as the underpinning theory. However, TAM does
221 not measure all aspects that could affect individual behavioral intention and actual
222 behavior in technology adoption as it only focuses on PU and PEU (Davis, 1989).

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223 Davis (1989), suggests examining the effect of external variables on the construct of
224 the TAM model. Moreover, many studies have used the combination of both appli-
225 cations (TAM and DOI) in a different context (Al-rahmi et al., 2019; Hubert et al.,
226 2019; Al-Naser, 2019; Hsu and Lin, 2015; Al-Ajam and Nor, 2013). To elaborate
227 more, Al-Rahmi et al. (2019) found it useful to establish the relationship between

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228 the five components (relative advantage, complexity, compatibility, trialability, and
229 observability) in his model to investigate the students’ intention to use e-learning
230 systems in the context of higher education undergraduate and postgraduate students
231 who were users of e-learning system in Malaysia (Ramaano, 2021).
232 Also, some researchers have argued that not all five factors are needed to be used
233

234

235
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to determine the perceived usefulness and perceived ease of use of technology. There
is no unanimity amongst researchers in applying the theory of DOI in totality to study
phenomena related to conducting online business, including FinTech. For instance,
236 Hubert et al. (2019) have argued that it is necessary to use only four components
237 depicted in DOI namely complexity, compatibility, trialability and observability to
238 determine PU and PEU. Lou and Li (2017) have used complexity, compatibility and
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239 relative advantage in studying the adoption of FinTech services in industries. Mutahar
240 et al. (2017) have argued that it is sufficient to use three components depicted in DOI
241 namely compatibility, trialability and observability to determine PU and PEU in
242 studying the adoption of Mobile Banking. On the other hand, Siddik et al. (2014)
have argued that the diffusion of innovation theory can be applied in totality to
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243

244 understand the adoption behavior of new technology, implying financial technology.
245 Furthermore, the researcher argues that combining all components of DOI in one
246 model to investigate the FinTech adoption intention of banks consumers taking to
247 account the components PU, PEU and therefore the adoption intention is not well
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248 researched in the literature, and there is a clear gap that needs to be addressed. Lack of
249 knowledge on how the five components of DOI affect PU and PEU and FinTech adop-
250 tion intention of consumers can discourage the consumers from adopting FinTech
251 services. Thus, this research posits that DOI theory in totality can be used to better
252 explain the relationship between the diffusion of FinTech services and intention to
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253 adopt FinTech services. Also, to derive a stronger model from explaining consumers’
254 acceptance of FinTech services introduced by banks, by taking the support of the
255 study Al-Rahmi et al. (2019) which combines both DOI and TAM this research.
256 The combination of both TAM and DOI (including the five components) considered
257 being a promising approach that has not been used in the context of FinTech services
To sum up this discussion, it is important to examine how DOI and TAM compo-
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258

259 nents can apply to understand consumer intention adopt FinTech in the minds
260 of consumers of banks. This argument provides the basis to draw the theoretical
261 framework to understand the above linkages.

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262 4 Conclusion

263 This research considered an innovative contribution to the body of knowledge due
264 to the following:

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265 1. Most existing research mainly studies the application model of FinTech services
266 from the supply side to enhance banks’ consumers’ experience. Scholars mainly
267 focused on how and what kind of FinTech services are provided, such as Crowd-
268 funding and Cryptocurrency. Other scholars address the adoption obstacle as
269 part of specific FinTech services (e.g., Internet Banking, Mobile Banking). Few

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270 researches pay attention to the empirical extension of pervious studies applied
271 in FinTech from the demand side. This research adds to the current research of
272 FinTech services from the consumers’ side.
273 2. Additionally, this paper aims to extend the applicability of traditional models
274 such as the Technology Acceptance Model (TAM), though applying Diffusion
275

276

277
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of Innovation Theory (DOI) and conducting comprehensive analyses of factors
influencing the adoption of FinTech services and their relationship, as well as
considering other factors influencing consumers’ behavioral to adopt FinTech
278 services, such as perceived risk. Moreover, this paper aims to evaluate whether
279 the integration of DOI and TAM provides a robust theoretical ground to examine
280 FinTech services’ adoption.
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281 3. The research results may provide useful insight to practitioners and managers in
282 better overseeing the new developments in FinTech investments. To maximize
283 their positive potential to improve profitability around more customer-centric
284 and value bearing services by understanding factors that influence customer
adoption of FinTech services. Furthermore, banks may use valuable informa-
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285

286 tion on the research outcome to adjust marketing strategies and strategic goals
287 implementation. By changing consumers’ behavioral intentions by adjusting the
288 influencing factors while providing financial and technological service to the
289 consumers. Thus, this will be signed for the banks’ development in the digital
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290 era.

291 References
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