Redefining Finance

The financial technology (FinTech) revolution is a well-established phenomenon on a global scale. Given the importance of banks in the financial system, it is critical to understand the risks and opportunities that FinTech creates for banks. Moreover, academic efforts have focused on the main functions of financial intermediaries and their role in the modern financial services ecosystems. Existing literature has emphasized the impact of FinTech as both a disruptor of traditional banking and a strengthener of the existing incumbents’ product portfolio. In this perspective, this chapter aims to provide a detailed explanation of the FinTech revolution. To this end, the authors first define the FinTech phenomenon, exploring the official FinTech taxonomy outlined by supervisory banking authorities and regulators. Secondly, the authors identify the main challenges and opportunities FinTech firms bring to the banking sector. Finally, a cluster analysis is applied to a sample of European-listed banks engaged in partnership agreements with FinTech firms. This is employed to empirically identify three distinct strategic profiles of incumbents toward the financial technology industry. The identified profiles indicate differences related to partnership characteristics and the structural conditions of the environments in which banking institutions operate.