Sustainability in FinTechs: An Explanation through Business Model Scalability and Market Valuation

Abstract

Framework: Financial Technology (FinTech) is an industry composed of diversified firms that combine financial services with innovative technologies. The research question and main goal are attempting to answer whether they are more similar to traditional banks or trendy technological firms deploying their innovativeness to favor financial inclusion and sustainability. Justification: Evaluators may wonder if FinTechs follow the typical evaluation patterns of bank/financial intermediaries or those of technological firms. Preliminary empirical evidence shows that the latter interpretation is the one consistent with the stock-market mood. Objective: This study goes beyond the extant literature, analyzing the differences between FinTechs and traditional banks in market valuation, and showing the potential for digital interaction and cross-pollination of complementary business models. Methodology: The differences will be empirically analyzed with the stock market valuation and the multipliers associated with these firms. Results: The main contribution of this paper is that the appraisal approaches of FinTechs follow those of technological startups, having a revenue model much more scalable than that of a typical bank. FinTechs may so provide a solution for sustainable finance with microfinance and crowdfunding among others. FinTechs and traditional banks may eventually converge towards a common market exploiting co-opetition strategies.

Digital Transformation in Banking: A Managerial Perspective on Barriers to Change

“…Technology is reported to disrupt the financial industry, solve friction points for consumers and businesses, and make the overall business more resilient and sustainable. Sustainable financial technology may contribute to the overall stability of the financial system as well [44]. Established technology-based business models can act as a sustainability catalyst to trigger collaborative innovations between traditional financial and banking institutions [45].…”

“…Financial technology (companies called FinTech(s)) plays an essential role here. It is an industry composed of diversified firms that combine financial services with innovation technologies offered to financial service providers [44]. Shin and Choi [48] define FinTechs as platforms for the development of sustainable economic growth as well as a prompter of the fourth industrial revolution.…”

“…Fin-Techs promise to disrupt and reshape the financial industry by cutting costs, improving the quality of financial services, and creating a more diverse and stabler financial landscape. Their existence is driven by sharing and the circular economy, as well as favourable regulation, and information technology [44]. FinTechs have the potential to unbundle core activities of the banking sector: clearing and settling payments, performing maturity transformations, sharing risks, validating trust, and allocating capital.…”

“…FinTechs have the potential to unbundle core activities of the banking sector: clearing and settling payments, performing maturity transformations, sharing risks, validating trust, and allocating capital. They have also created a new paradigm in which information technology represents a meaningful driving force that gives rise to innovation [44].…”

“…Their business model is intangibly driven, combining e-finance, internet technologies, social networking, artificial intelligence, blockchains, and big data analytics. Moreover, their revenue model is much more scalable than that of a typical bank [44].…”