Banking in Transition: The Effect of FinTech on Incumbent Banks in Sweden

Abstract

This thesis examines the impact of Financial Technology (FinTech) on the market power and financial performance of incumbent banks in the Swedish banking sector. This study utilizes a panel dataset covering six major banks in Sweden from 2010 to 2023 and applies fixed effects regression model to examine the impact of FinTech presence, proxied by venture capital investments, on market power and financial performance. Market power is measured by the Lerner index, and financial performance is measured through return on assets and return on equity. The results indicate that after the implementation of the PSD2 directive, increased FinTech presence is associated with a decrease in incumbent banks’ market power. Additionally, the results indicate that FinTech presence has a negative impact on the financial performance of incumbent banks. These findings suggest that FinTech represents an emerging competitive force, and that regulation may play a key role in shaping its future influence on the banking industry.