Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334951 
Year of Publication: 
2025
Series/Report no.: 
JRC Working Papers in Economics and Finance No. 2025/7
Publisher: 
European Commission, Ispra
Abstract: 
In this paper we investigate the role played by banks in financing European fintech startups. We postulate that this role may be influenced by two conflicting objectives. First, banks could be motivated by value considerations, in that the objective would be to help the fintech scale-up and reach a successful exit, so value can be captured from returns on equity or debt investments. Alternatively, given that fintechs can be viewed as substitutes to banks, investment in fintechs might be motivated by a desire to curb down competition ("buying out competitors"). We examine these conflicting objectives using data on investments made by EU and non-EU banks in fintech startups, and take advantage of an exogenous shock to fintech value provided by the EU's PSD2 policy. Our results suggest that EU banks are driven by the motive of reducing competition. On the contrary, the behavior of non-EU banks seems to be driven by the value capturing motive, and this may have generated a substitution after PSD2 in non-EU bank financing of EU fintechs towards debt. Our findings suggest that EU fintechs may need to reduce their reliance on bank financing in order to close the financing gap and achieve successful scaling up
Subjects: 
EU startup financing gap
bank involvement
value enhancing vs competition
JEL: 
G21
G24
M13
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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