This paper is about the relevance of cluster economics for the FinTech industry.
While the FinTech industry overall has experienced strong growth in recent years, the geographical presence of FinTechs is not homogeneously distributed. Instead, it can be observed that certain FinTech hotspots are emerging. Within the political arena there is a discussion about how to make business locations more attractive for the accumulation of FinTechs. In this context the theory of economic clusters must be investigated. What are the underlying factors that contribute to the formation of FinTech clusters?
This paper builds on initial studies on this topic and sheds light on various factors that could be decisive for the agglomeration of FinTechs. Using Michael Porter's Diamond Model, various factors were derived, which were then statistically examined using a data sample for the European Union. The results of the study show that besides the availability of positive externalities, such as specialized talent pools, universities, and accelerators, demand factors such as total market size, internet connectivity, and financial literacy are relevant. Furthermore, the results suggest that the presence of competitors and similar firms, as well as the strength of intellectual property protection laws, are related to the size of FinTech clusters. Based on the results, recommendations for policy makers and FinTech entrepreneurs are provided.
Table of Contents
1 Introduction
2 Methodology
3 Literature Review and Theoretical Framework
3.1 FinTech
3.1.1 Definition
3.1.2 FinTech Business Segments and Taxonomy
3.2 Economic Clusters
3.2.1 Theoretical Foundations
3.2.2 Porter’s Diamond Model
3.2.3 FinTech Clusters
4 Qualitative Analysis
4.1 Conceptualization of FinTech Clusters
4.2 Application of Porter’s Diamond Model to the FinTech Industry
5 Quantitative Analysis
5.1 Overview of Variables and Data Sample
5.2 Regression Models
5.3 Discussion of Results
5.3.1 Model 1 – Factor Conditions
5.3.2 Model 2 – Demand Conditions
5.3.3 Model 3 – Related and Supporting Industries
5.3.4 Model 4 – Strategy, Structure, and Rivalry
6 Conclusion
7 Appendix
Research Objectives and Key Topics
This master's thesis investigates the underlying economic factors that contribute to the formation and agglomeration of FinTech clusters. By applying Michael Porter's Diamond Model, the research aims to empirically identify how specific regional and national variables influence the density of FinTech companies in the European Union.
- Application of Porter’s Diamond Model to the FinTech industry.
- Qualitative conceptualization of FinTech cluster components.
- Statistical analysis of regional factors (talent pools, universities, accelerators).
- Macro-economic analysis of national demand conditions and regulatory frameworks.
Excerpt from the Book
3.2.3 FinTech Clusters
Even though financial services and information technology (IT) clusters have been extensively studied (e.g. Athreye, 2004; Chyi, Lai, & Liu, 2012; Zhang & Chen, 2013), the relevance of clusters within the FinTech industry has only recently caught attention among practitioners and scientists. In fact, the literature review shows that only since 2016 there has been an upcoming interest in studying the determinants of FinTech cluster formation. While policy makers increasingly promote FinTech clusters (Dietz, HV, & Lee, 2016), only a few studies investigate the mechanisms behind it. In order to lay the foundation for the analysis in Chapter 4 and 5, the existing literature on FinTech clusters is reviewed in the following.
Generally, the literature on FinTech clusters can be divided into two types: (1) case studies, and (2) macro studies. In case studies, the author usually discusses the factors which determine the formation of a FinTech cluster at a specific city or country. In macro studies, a quantitative approach is utilized to test the significance of several variables on the agglomeration of FinTechs. Here, the geographic scope of analysis can be as well on a city or country level.
Most authors regard the financing infrastructure within the cluster as one of the most important factors (Basole & Patel, 2018; Haddad & Hornuf, 2019). In order to evaluate a potential investment, FinTech companies go through an extensive due diligence process. Meeting the founders personally and developing trust is one important aspect of it. Keeping close contact to venture capital funds is advantageous, as they offer not only highly needed equity to grow the business but also a network of experts, business angels, and professionals who can assist strategically.
Summary of Chapters
1 Introduction: Provides an overview of the FinTech industry's growth, highlights the trend of geographical agglomeration, and defines the research question regarding the drivers of FinTech cluster formation.
2 Methodology: Describes the three-part research approach consisting of a literature review, a qualitative analysis using Porter's Diamond Model, and a quantitative statistical analysis.
3 Literature Review and Theoretical Framework: Establishes definitions for FinTech, outlines cluster theory including Porter’s Diamond Model, and reviews the state of research on FinTech clusters.
4 Qualitative Analysis: Develops a conceptual FinTech cluster model and applies the four dimensions of Porter's Diamond Model to derive testable hypotheses for the subsequent empirical study.
5 Quantitative Analysis: Details the dataset and regression models used to empirically test the hypotheses, discussing the results across the four dimensions of the Diamond Model.
6 Conclusion: Summarizes the key findings, acknowledges study limitations, provides policy recommendations, and suggests avenues for future research.
7 Appendix: Contains supporting tables, taxonomies, and supplementary data visualizations used throughout the thesis.
Keywords
FinTech, Economic Clusters, Porter's Diamond Model, Agglomeration, Financial Services, Cluster Economics, Venture Capital, Innovation, European Union, Regression Analysis, Business Location, FinTech Hubs, Quantitative Analysis, Regional Development, Technology Spillovers.
Frequently Asked Questions
What is the core focus of this master's thesis?
The thesis explores the relevance of cluster economics within the FinTech industry, specifically seeking to identify the drivers and underlying factors that lead to the formation of FinTech clusters.
What are the primary thematic areas covered?
The work focuses on the intersection of FinTech business models, economic cluster theory, and the application of Michael Porter's Diamond Model to explain regional and national firm agglomeration.
What is the primary research question?
The research is guided by the question: "What are the underlying factors that contribute to the formation of FinTech clusters?"
Which scientific methods are employed?
The study uses a three-fold methodology: a comprehensive literature review, a qualitative application of Porter's Diamond Model, and an empirical statistical analysis using negative binomial and ordinary least squares regressions.
What does the main part of the thesis examine?
The main part analyzes various factors—categorized into factor conditions, demand conditions, supporting industries, and market strategy—to see how they statistically influence the count of FinTech companies across cities and countries in the EU.
Which keywords characterize this research?
Key terms include FinTech, Economic Clusters, Porter's Diamond Model, Innovation, Venture Capital, and Regional Development.
Why does the study emphasize the role of universities and accelerators?
The analysis indicates that these institutions act as critical hubs for talent pooling, knowledge spillovers, and startup support, which are statistically linked to higher numbers of local FinTechs.
How does the research assess the impact of financial literacy?
Contrary to original expectations, the quantitative results show a negative relationship between financial literacy and FinTech presence, possibly suggesting that FinTechs face less competition in markets where financial product offerings are less sophisticated.
- Arbeit zitieren
- Gabriel Socha (Autor:in), 2020, The Relevance of Cluster Economics for the FinTech Industry. Theory and Analysis, München, GRIN Verlag, https://www.grin.com/document/1006271
