FISCA ADELIA FEBYANI

21011242
Fintech, (selasa 10.15)

Title
The emergence of the global fintech market: economic and technological determinants
Writer
Christian Haddad & Lars Hornuf
Website
https://doi.org/10.1007/s11187-018-9991-x

Introduction

Why do some countries have more startups intended to change the financial industry through
innovative services and digitalization than others? For example, in certain economies, there
has been a large demand for financial technology (fintech) innovations, while other countries
have made a more benevolent economic and regulatory environment available. In this article,
we investigate several economic and general technological determinants that have
encouraged fintech startup formations in 55 countries. We find that countries witness more
fintech startup formations when the economy is well-developed and venture capital is readily
available. Furthermore, the number of secure Internet servers, mobile telephone
subscriptions, and the available labor force has a positive impact on the development of this
new market segment. Finally, the more difficult it is for companies to access loans, the higher
is the number of fintech startups in a country.

Research Purposes

For our independent variables, we employ different databases that provide country-year
variables to construct a panel. To test Hypothesis 1, whether well-developed economies and
capital markets positively affect the frequency of fintech startup formations, we include the
GDP per capita, the number of commercial bank branches, the extent of VC financing, and
MSCI returns at the countryyear level. Yartey (2008) suggests that income level is also a
good proxy of capital market development. We therefore include the natural logarithm of
GDP per capita, which came from the World Development Indicators database. To capture the
physical presence of banks, which traditionally allow customers to conduct various types of
transactions, we employ the variable commercial bank branches per 100,000 adults in the
population extracted from the International Monetary Fund Financial Access Survey.
Furthermore, to measure the development of the venture capital market, we calculate the
variable VC financing using the data retrieved from the CrunchBase database. We construct
VC financing as the natural logarithm of the total amount of VC funding of all the firms
available in the CrunchBase database excluding the fintech startups used in our analysis over
the GDP per capita at the country level. Moreover, to control for changes in market
conditions over time, we include MSCI returns. To construct this variable, we extracted the
stock prices from the MSCI website and calculated the percentage change in the country-
specific MSCI returns from the prior year to the current year.

Result

This article explores the economic and technological factors driving the formation of fintech
startups. Here are the key takeaways:

Fintech Landscape:

 The US dominated the fintech market until 2015, followed by the UK, India, Canada,
and China.
 Financing is the most prominent fintech segment, followed by payment, asset
management, insurance, and others.

Policy and Practice Recommendations:

 For Regulators:
o Well-developed economies with flexible regulations see more fintech startups.
o Fintech can promote financial inclusion, but affordable technology and
infrastructure are crucial.
o Regulatory sandboxes can support financing-focused fintechs that address
small business funding gaps.
 o New systemic risks from fintech require regulatory scrutiny, especially in
areas like online factoring and marketplace lending.
 For Incumbent Financial Institutions:
o A highly skilled workforce attracts fintech hubs.
o Globalization necessitates immigration-friendly policies to attract talent.
o Incumbent institutions may struggle to compete with the innovative culture of
fintech startups.
o Rebranding and restructuring are essential to attract talent and compete
effectively.
o Large ecosystems and tech firms pose a greater threat than solely fintech
startups.
o Incumbents have an advantage in scale and resources to develop platforms and
lock in customers.
o They can create new ecosystems by offering bundled services and leveraging
technology.
 For Fintech Entrepreneurs:
o Develop unique selling points to avoid being easily copied by incumbents.
o Consider collaboration with established institutions or ecosystems.
o Closely monitor regulatory changes that might impact core business models.
 For Investors in Fintechs:
o Access to venture capital significantly influences fintech startup formations.
o Investment opportunities vary geographically, with the US and Asia leading
the way.
o Fintech can improve financial intermediation, especially in regions with
limited access to traditional banking.
o Consider the potential for lower returns and longer timelines for profitability
in some fintech segments.

Connection With The Phenomenon In Indonesia

 Fintech Growth Potential: Indonesia has a large population with increasing

smartphone penetration, creating a fertile ground for fintech adoption.
 Government Support: The Indonesian government is actively promoting financial
inclusion, which aligns with the potential of fintech to reach unbanked populations.
 Regulatory Landscape: Indonesia is developing regulations for fintech, and the
article's emphasis on balancing innovation with regulatory oversight is relevant.
 Competition: The dominance of financing and payment fintechs globally suggests
similar trends in Indonesia. However, local factors and regulations might influence the
specific segments that thrive.
 Challenges: The article highlights the need for affordable technology and
infrastructure. Bridging the digital divide and ensuring secure transactions are crucial
for fintech success in Indonesia.