Research on financial innovations: an interdisciplinary review

Abstract

PurposeThe financial industry offers a unique setting to study innovations. Financial innovations have fueled the growth of economies, markets and societies. The financial industry has successfully become the breeding ground for innovative services, processes, business models and technologies. This study seeks to provide a holistic view of the literature on financial innovations, synthesize the research findings and offer future directions for research in light of three market developments that are disrupting the industry and opening up a new era for the financial services industry. Disruptions from within and outside the industry offer new generations of radically innovative services. Moreover, new generations of consumers differ from previous generations in their needs and wants and look for innovative ways to handle their financial needs. Finally, significant developments related to financial innovations have emerged in Asia and developing countries.Design/methodology/approachThis study systematically reviews the academic research literature on financial innovations in two phases. The first phase provides a quantitative review of 546 journal articles published between 1990 and 2018. In the second phase, the study synthesizes the extant research on financial innovations and maps them in five research areas: firms' introduction and adoption of FIs, financial innovation development, the outcomes of financial innovations, regulations and intellectual property, and consumers.FindingsThe analysis found that disciplines differ with regard to the employed research methodologies, the units of analysis, sources of data and the innovations they examined. A positive trend in the number of published articles during this period is observed. However, studies have primarily focused on the USA and Europe and less so on other parts of the world. The literature synthesis further identifies research gaps in the available research that highlight future research opportunities in light of the three market disruptions. The financial services industry is on the brink of a new era due to disruptions from within and outside the industry and the entrance of new generations of consumers. Moreover, the financial industry has successfully become the breeding ground for innovative services, processes and business models. Therefore, financial innovations offer promising opportunities for bridging the gap between research on product and service innovations.Research limitations/implicationsThe work provides a holistic and systematic overview of extant research on financial innovations and highlights future research opportunities in light of the three disruptive market developments. It helps researchers take advantage of the opportunities in studying financial innovations while maintaining industry relevance.Originality/valueThe study is the first to review and synthesize the academic research literature on financial innovations across marketing, finance and innovation disciplines. In addition, the study highlights three primary disruptive forces in the financial industry and identifies future research directions in light of these disruptive forces.

Financial innovation and banks performance in developing countries: Evidence from Ghana

“…Based on the focus of previous studies, financial innovation is defined as one of the following: new product, new service, new product process or new organisation form (Chen & Peng, 2020, p. 308; Frame & White, 2004, p. 118; Nejad, 2022, p. 579). Investigating improvement in performance brought about by the introduction of a new service ties into what (Nejad, 2022) describes as the ‘outcome’ of innovation.…”

“…Based on the focus of previous studies, financial innovation is defined as one of the following: new product, new service, new product process or new organisation form (Chen & Peng, 2020, p. 308; Frame & White, 2004, p. 118; Nejad, 2022, p. 579). Investigating improvement in performance brought about by the introduction of a new service ties into what (Nejad, 2022) describes as the ‘outcome’ of innovation. This is where a new product, service, process, or business model is meant to reduce costs, improve performance, and capabilities, offer new ways of addressing customer needs, extend functionality, and so forth (Nejad, 2022, p. 582).…”

“…Investigating improvement in performance brought about by the introduction of a new service ties into what (Nejad, 2022) describes as the ‘outcome’ of innovation. This is where a new product, service, process, or business model is meant to reduce costs, improve performance, and capabilities, offer new ways of addressing customer needs, extend functionality, and so forth (Nejad, 2022, p. 582).…”

Impact of Covid-19 Pandemic on Financial Innovation, Cashless Society, and Cyber Risk

“…This is best summed up by M. Blake (2021), Head of Financial and Monetary Systems, World Economic Forum: "Despite this challenging backdrop, FinTechs have proven resilient and adaptable: contributing to pandemic relief efforts, adjusting operations and offerings to serve vulnerable market segments, like micro, small and medium-sized businesses, while posting year-over-year growth across most regions" (p.1). Namely, the pandemic has shown that fintech companies have access to more individuals, lower the cost of financial services, and that they reduce the need for face-to-face interactions (Nejad, 2022). The following graph shows the value of services of key fintech companies during the first six months of 2020 as compared to the same period in 2019.…”

“…With the extended duration of the pandemic, it is reasonable to expect a further growth in demand for digital lending because cash reserves will be exhausted. Nejad (2022) showed that fintech companies significantly changed their business models during the pandemic, i.e. "two-thirds of firms said they had changed their business model in response, including by reducing fees, changing qualification criteria, and easing payment requirements, about 60 percent reported launching new products and value-added services, such as offering information, forty percent of firms surveyed indicated that they have either introduced or are in the process of introducing enhanced fraud or security measures as a response to business conditions under the pandemic. "…”