Political Economy of Fintech: Reviewing the State of Affairs and Setting a Research Agenda

Financial regulation and financial development are ultimately the result of political decisions, reflecting the constellation of interests, ideas, and institutions. Even if a policy solution is economically efficient, it will not be adopted if it goes against powerful interests, is blocked by institutional gridlock, or conflicts with the prevailing ideational environment. This has long been recognized in the fields of political economy and financial economics, leading to a substantial and diverse body of research on the politics (or political economy) of finance and financial regulation. In contrast, there has been very little research on the politics and political economy of financial technologies (Fintech). While researchers have increasingly addressed Fintech, most of this work has focused on the fields of economics and law, often tackling the normative question of how Fintech should be regulated. Few studies, however, examine the political drivers behind Fintech regulation (and ultimately Fintech development). In this paper, I aim to review the existing literature and, given its current underdevelopment, propose pathways forward. Given that Fintech is both a financial and technological phenomenon, I draw from the literatures on the political economy of finance, regulatory innovation, and politics of technology. I explore how the politics of Fintech may align with, yet also diverge from, traditional theories on the politics of finance in terms of the determinants of Fintech regulation. Specifically, I examine the role of interests (notably, the traditional financial institutions that may either stall Fintech development to limit competition or embrace and collaborate with newcomers), institutions (such as political regimes more broadly, but also the mandates and independence of regulators, particularly central banks), and ideas (including contrasting framings of Fintech, which range from viewing it as an efficiency-enhancing and democratizing force to seeing it as perpetuating existing dependencies and financialization). Overall, I seek to provide a theoretical framework and outline specific hypotheses to guide future research in this area. Furthermore, I touch upon how the existing measures of Fintech regulation (e.g. the World Bank’s Global Fintech-enabling regulations database) can be improved upon to provide better measures across space and time of Fintech regulation both as a dependent and independent variable.