Entry Barriers in Fintech

Abstract

Despite its disruptive impact on legacy financial institutions, processes, and services, the use of new technologies in finance has many potential consumer welfare benefits and market efficiencies. Yet new financial technology (fintech) firms often face significant barriers to entry. This chapter identifies the core entry barriers that new firms face when attempting to enter the market for technology-mediated financial services. Restrictive fintech entry barriers experienced to date across global markets include financial and human capital acquisition challenges, market concentration forces, economies of scale and scope, service-bundling, market integration and infrastructure access concerns, network effects from multi-layered platform enterprises, consumer financial data access, portability and control barriers, concerns relating to technology infrastructure, standardization and interoperability, regulatory imposed entry barriers and uncertainties, and consumer perceptions of stability and trust. This chapter concludes with policy recommendations to alleviate fintech market entry barriers while ensuring appropriate consumer and financial system protections and safeguards.

Keywords: Fintech, Entry Barriers, Network Effects, Platform Finance, Interoperability, Switching Costs, Concentration Risk

JEL Classification: K2, K21, K22, K29