Market competition and strategic interaction in the Spanish FinTech industry

Financial technology (FinTech) is driving innovation in the financial industry worldwide, but it also poses a threat to traditional banks by the new FinTech start-ups. This article contributes by analysing whether incumbent financial institutions, through their FinTech ventures, compete or collaborate with the new FinTech firms. As a case study, we use the emergent FinTech industry in Spain during the decade of 2010s – a country with a world-leading banking sector before the global financial crisis and now third in Europe by number of FinTech firms. Competition among FinTech firms is measured using the Herfindahl–Hirschman index, the Panzar-Rosse H statistic, the Lerner index, and the Boone indicator, while an oligopolistic conjectural variation model tests interaction between bank-owned and independent FinTech start-ups. The results show that traditional banks use their FinTech ventures to compete against the new players in the industry. The process has led to sharp reductions in concentration but moderate, albeit increasing, market competition in the context of a twentyfold increase in revenues during the decade. Authorities can draw lessons for policy-making in favour of regulation that promotes a level playing field in which independent FinTech start-ups can compete.