5.1 Literature discussion
In this research paper, the impact of purpose-driven orientation in the banking industry on the collaboration between banks and fintechs was analyzed by including the banks’ characteristics that can have an impact on the partnerships formed. Using a hybrid dataset by combining data from several databases and sources, a panel dataset with the 101 largest banks in France, Netherlands, Germany, and Switzerland with 747 observations across 8 years was formed. To measure the relationship between the purpose and the partnership, two hypotheses were drawn to test it in two different ways. First, whether there is a higher probability of at least 1 partnership between a fintech and a bank in a particular year. The second one is how many more partnerships/interactions do purpose vs non-purpose banks have. The researcher found 21 purpose-driven banks. Moreover, 61 out of 101 banks collaborated with fintechs with an overall of 697 partnerships and collaborations during 8 years. Consequently, this paper provides evidence to the idea of Kohtamaki et al. (2019) that banks are now more open to different market interactions including collaborations, partnerships, and mergers with fintech startups.
The hypotheses of this paper are based on the theories about purpose, sustainability, and CSR orientation as well as the intensively studied topic of collaborations and M&A. Both hypotheses were formed by combining stakeholder maximization and strategic alliances theories in which orientation towards purpose and sustainability has an impact on the chance of the deal happening between two companies (Gomes, 2019; Jansen, 2010). When comparing the level of purpose incorporated in the activities of the driven and traditional banks, this thesis proposes hypotheses that purpose-driven banks are more likely to establish alliances with fin-techs and that there is a positive relationship between purpose-driven banks and the number of partnerships between those banks with fintechs. This prediction is based on the “learning-about a partner” theory, which in the context of this paper means that the choice of the partner will be positively influenced by mutual environmental,
social, and governmental capabilities. This thesis reports the following results on the above-mentioned hypotheses.
For hypothesis 1, there was a statistical significance that purpose-driven banks are indeed more likely to have at least one partnership with a fintech. Probability of the deal happening increases by 37% if the bank is purpose-driven versus not purpose-driven. Even though there is no literature directly connecting purpose and the likelihood of the deal happening in the banking industry, there are several studies that are somehow related to the findings of this paper. For instance, they support the paper of Gomes (2019), where the researcher claims that there is a higher chance of the deal happening between two companies if both have a strong orientation towards environmental and social goals. In addition to that, as a possible explanation of why it might happen, the work of Vastola and Russo (2020) comes to help. They claim that if both the target and the acquirer share a similar vision toward corporate social responsibility and activities related to that, the success of the merger or acquisition is higher. This idea reflects that if purpose-driven banks have purpose incorporated in the business model and, according to Vallaster, (2005) and Kautonen et al. (2020), startups are purpose-driven as well, a bank and a startup will choose each other in a partner selection process which in turn increases the chances of a partnership. This positive relationship between purpose and collaboration/ partnership also provides support to the idea of Kim et al. (2019) that purpose-driven banks are more likely to have a vision for digital transformation and innovation. According to several authors (Volberda et.al., 2018), digital transformation must reflect 3 of the following elements:
adoption of new technologies, new forms of value creation and organizational changes. In one way or another, each of these elements can be reached by a bank through collaboration, partnership, or a merger with a fintech. Additionally, since these findings provide the support that the purpose-driven bank is more likely to collaborate with fintechs, this paper can provide a ground for further research on the influence of purpose on digital transformation. Moreover, the size of the bank, its equity ratio and its age were found to have an impact on the probability of collaboration. It is in line with the
findings by Hornuf et al. (2020) since they provide evidence that bigger and older banks collaborate with fintechs more often than the small ones.
It is also worth noting that both dependent variables of this research measure relatively the same thing: the effect of purpose-driven orientation on the collaboration with a fintech. So, the theories applied in the case of one can be applied in the case of another.
For hypothesis 2, there was a statistical significance that purpose-driven banks have a higher number of partnerships with a fintech. The number of deals and partnerships increases by 4.912 partnerships if the bank is purpose-driven versus not purpose-driven. These findings support the ideas of several authors like Gulati et al. (2009) and Heimeriks and Duysters (2006). They propose that learning more about an alliance partner can affect decisions about joining and learning more about new partnerships. As a result, learning-about not only relates to advancing a particular partnership but also to whether a company establishes new ones. It is worth mentioning that it goes both ways:
both parties are involved in the process of learning about each other's goals and capabilities. It means that both fintechs and banks might form more partnerships and this paper observes it from the bank’s perspective. Moreover, Jo and Kim (2019), claimed that the prior experience in acquisitions in the IT industry relates to the higher attempts of acquisitions in the future. It potentially explains that if a bank was involved in one partnership with a fintech, there will be more partnerships formed in the future. A possible explanation for why there could be a higher number of partnerships for purpose-driven banks is the work of Das and Teng (1998), which claim the more trust there is, the higher the confidence is in the collaboration or alliance. Being purpose-driven and having other fintech collaborations might increase the trust and the confidence in the bank from different stakeholders including new partners. The findings of this hypothesis support the idea of Kim et al. (2019) as well as the previous hypothesis. This idea reflects that purpose-driven banks are more likely to have a vision toward digital transformation and with the support of the findings further investigation can be done. In addition to that, all control variables were found to be statistically significant, which means that they all have an impact on the number of collaborations. In line with Moeller et al. (2004), bigger
banks have more capital to invest in innovation and digital capabilities, which in turn has an impact on the financing of the partnership. Additionally, the equity ratio has a high influence on the number of collaborations. It might be explained through the capital structure of the firm. The higher the equity ratio, the more assets were acquired through the shareholders’ funds rather than debt and indicates that there is a lower pressure in terms of those debt obligations to fulfil that can in return influence the focus of the firm on the innovation strategies instead of simply surviving.
Overall, these findings support the idea that purpose incorporated in the banking business model influences the collaboration with a fintech. It does not only increase the probability of the partnership happening but also impacts the number of those partnerships formed. Purpose-driven, big, old banks with a higher equity ratio are more likely to have a partnership/collaboration with a fintech and have a higher number of those collaborations.
5.2 Theoretical and practical implications
This paper’s analysis has implications for the theoretical development in the topics of strategic alliances and innovations and purpose-driven business models in the context of the banking industry.
Higher concerns towards sustainability and the rise of fintech companies resulted in banks’
collaborating with fintechs more often. The researcher found evidence of the purpose having an impact on those collaborations that partly supports the ideas of previous literature but goes beyond it, opening the ground for new theories. This research also has a practical implication for the bank’s management and fintechs since the regaining trust of the society and consumers is in question.
According to the results, for fintech entrepreneurs who are willing to collaborate with banks, approaching the ones which are more-purpose driven but also large and with a good equity ratio makes more sense since it has a higher probability of happening. From the perspective of the bank, it would be useful to assess the purpose and CSR initiatives it has and put an effort into reporting them since it can be a source of the information for the fintechs that want to collaborate with banks.
For the management of the bank, it is vital to understand the importance of the purpose and consider switching consumer preferences and reassess its business models and innovation strategy. However,
based on the findings of this paper only 21 banks were considered purpose-driven. This paper provides an insight into how the relationship between purpose and collaboration is formed and how defining a purpose and making steps towards it has an impact on that relationship.
6. Conclusion