Do European Fintech Benefit from Bank-Affiliated Vcs?

Abstract

The impact of bank-affiliated venture capital (BVC) on the performance of FinTech firms is investigated in this study. Grounded in the strategic and complementarity-based behavior of banks and employing a resource-based view (RBV), it is explored whether BVC-backed FinTech firms outperform their non-BVC-backed counterparts and whether this superior performance can be attributed to either the screening or monitoring effects of BVCs or both. A dataset of pre-Brexit European FinTech firms is utilized, examining funding rounds between 2006 and 2019. Logistic regressions are employed for the primary analysis, while propensity score matching is used to control for selection bias. A machine learning technique is applied to address imbalanced data. The dataset reveals that BVC funding effectively enhances FinTech firms' profitability and tends to select firms with superior asset performance. These findings remain robust to both selection bias and imbalanced data concerns. The results imply that bank affiliation may serve as a crucial determinant for FinTech entrepreneurs when selecting new investors. The insights contribute to the academic understanding of BVC funding's role in the development of FinTech within a European market marked by considerable information asymmetry and potential resource-based complementarities with banks.

Keywords: FinTech, Bank, Venture capital, Performance, Pre-Brexit Europe, Screening effect, Monitoring effect