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In 1971, the patent for the Automated Teller Machine was awarded to David Wetzel. While possibly not the first application of financial technology, since 1971 time, the innovation in the financial industry has grown beyond expectations. However, most studies in innovation ignore the financial sector altogether. In this study, the authors investigate financial technology firms and innovation. After identifying firms that are considered financial technology, the authors collect innovation outcomes such as patents and data breaches associated with those firms. The authors show that patent activity has enjoyed modest growth year over year; however, firms still have challenges to overcome such as market risk and data security. This study serves as a perspective on financial technology.

This paper views the housing and credit bubble 2001–2008 as a sequence starting with a financial innovation in 2001 followed by the superimposition of other financial innovations leading to the prevalence of uncertainty in Knight's sense and ending in the last quarter of 2008 with both market failure and regulation failure. To the extent that financial innovations were an important factor in the development of the bubble, the most obvious question is whether anything can be done to prevent destabilizing innovations from entering the market. The paper outlines a policy proposal to keep pace with financial innovation and strike a balance between innovation and financial stability.

Crowdfunding is an emergent practice that is increasing exponentially as a means of financing to complement company capital. This chapter focuses on an innovative way of organizing peer-to-peer lending, known as crowdlending. The characteristics of crowdlending are social reward or interest and using the Internet as a medium for communication, prospection and raising funds. To fill the gap in the literature in this regard, this chapter addresses the following questions: Can crowdfunding be considered as a feasible conventional financial tool? What makes crowdlending work? Is it possible to apply the mutual cash holding (MCH) model to crowdlending as well as to previous examples such as the Mondragon Corporation and Trocobuy?

We use three cases (Mondragon Corporation, Trocobuy and Arboribus) to highlight financial tools that use the concept of stakeholder theory that is based on the collaborative management of cash surpluses. Using the Delphi technique combined with in-depth interviews we demonstrate the contribution of the MCH model to crowdlending. We show that the model could be applied to different organizations, thereby indicating its robustness and implying that it could be used in many other cases.

The present study suggests that crowdlending describes a new financing tool as a principal form of lending; it enables companies to implement a financial tool that allows for social development and stakeholder participation and that can ensure companies’ financial sustainability.

This model is based on six elements: expectations of mutual benefits, trust, management, guarantees, mutual profit and benefit. It suggests mutual benefit and positive social values for all stakeholders. However, cash surpluses will be efficiently used only when crowdlending is relevant to investors’ economic objective, because crowdlending as a social innovation does not in itself guarantee economic benefit.

The chapter provides evidence of crowdlending in practice. The research compares key cases in which the MCH model is applied. It also provides important insights into crowdlending as a social innovation.

Using market-risk disclosures as an empirical context, and drawing on the diffusion of innovations (DOIs) model, this paper contributes new sociological perspectives to a theorization of compliance. We propose that stakeholder behaviors during accounting standard-setting discussion and adoption phases are motivated by social, political, and economic factors. These phases interrelate, and consequently, any analysis of managerial disclosure decisions benefit from considering them together, rather than in isolation, as is typical.

The authors use a mixed-methods design, including detailed analysis of semi-structured interviews (n = 26), constituents’ comment letters (n = 106), annual report disclosures (FTSE 350: firm-year observations n = 1,131), technical meetings, and standard-setting documents.

Results suggest that constituents initially supported introduction of a set of mandatory market-risk disclosures, but implied costs of the proposed and subsequently approved requirements outweighed perceived benefits and efficiencies. This study elaborates on these issues, exploring how and why a financial reporting innovation that stakeholders deemed technically inefficient was diffused. Although the authors were told that compulsion (i.e., forced-selection) dominates disclosure decisions, some freedom of choice remains, as evidenced by greater than 40% non-compliance during the first year of adoption. Respondents indicate that theoretically, market-risk disclosure adoption decisions rest on assessment of the costs of disclosure (e.g., preparation and competition) versus non-disclosure (e.g., litigation and reputation). Second-phase adoption is more straightforward because the costs of disclosure decrease over time.

Although mixed-methods research offers several advantages, self-selection bias, issues with coding reliability, and interviewer/interviewee bias are possible. It is impossible to achieve a truly holistic understanding of standard-setting, and therefore the authors acknowledge that findings are not generalizable, though the risks were minimized.

Recognizing that disclosure choices are not made in political and social vacuums, this study suggests that sociological perspectives such as innovation-diffusion inform a theory of compliance.

This study investigates the causal relationship between financial innovation (FI) as proxied by the bank credits to private sector, as percentage of GDP and economic growth in case of Azerbaijan using annual data covering the period from 1992 to 2018. For this purpose, the Toda–Yamamoto causality test with the framework of vector autoregressive (VAR) model is utilized to test causal relationship between the variables. The estimation results reveal that there is bidirectional causal relationship between FI and economic growth. The findings of the study suggest the researchers and policy makers to understand the role of FI in economic growth for macroeconomic stability and sustainable development purposes in Azerbaijan and other developing oil-rich countries.

In this study, the authors use a country-level database covering 63 economies over the period 2014–2019 and employ a wide range of proxies to discuss new technological trends in finance, particularly in the banking sector. The authors also distinguish alternative technology-based business models that directly compete with banks [financial technology (fintech) and giant technology (bigtech) credit providers]. The results suggest that banks’ increased focus on technological innovation, as measured by market value and number of patents, is a possible response to the emerging technology-based nonbank competition, particularly from fintech and bigtech firms. Additionally, the results indicate that the emergence of financial innovation contributes negatively to the average value of bank patent, indicating significant competitive pressure on banks in the technological race. Thus, banks are countering the challenge of fintech and bigtech competition in the financial market by increasing their technology projects and patenting activities. These trends are crucial and may change the stability and sustainability perspectives of banks.

This chapter introduces the concept of financial market and highlights the role of e-payment systems in the financial market by focusing on the keywords of financial innovation, e-payment and sustainability.

One of the lessons learned from the recent financial-sector crisis is that institutions may sometimes sow the seeds of their own destruction. We offer a two-tiered analysis of how the diffusion of innovative practices – in this case, issuing and securitizing subprime mortgages – can lead to an unanticipated breakdown of established institutions. At the institutional level, we demonstrate that the lack of effective external regulatory presence, the emergence of new norms through the introduction of a new institutional logic, and intense mimetic and competitive pressures may lead organizational actors to exploit a suboptimal innovation. At the organizational level, we argue that over-embeddedness of central actors within relatively closed networks and superstitious learning processes can exacerbate the biases to which decision makers are susceptible, leading to the institutionalization of a suboptimal organizational practice. These two parallel sets of processes led to severe consequences at the institutional level, which we label “terminal isomorphism.” We end by discussing consequences for institutional theory, future research directions, and recommendations for policy makers.

This chapter discusses how one bank, committed to social innovation and investment in low-income communities, evolved into a model of socially responsible banking and exemplary community development financial institution. The authors draw lessons from this experience and propose ways to apply those lessons to other financial institutions.

The chapter is based on an in-depth case study of ShoreBank. It includes extensive interviews with two of the bank’s cofounders, who served as the bank’s leaders for more than 37 years.

The case study has identified six key enabling factors for social innovation: (1) a social purpose that is deeply, and effectively, embedded in the organization’s mission, strategy, and operations; (2) an ownership structure to support the social mission and a structure (e.g., bank holding company) that facilitates social innovation; (3) capital capacity – that is, ability to create credit through leverage; (4) a deep level of knowledge about the business, the clientele, and the operating environment; (5) talented people who bring both skill and passion for the mission to the institution-building process; and (6) the discipline to continuously innovate, at a scale appropriate to the problem, with resources that are adequate to the challenge.

This work has several limitations including a focus on one U.S. bank holding company, and based on interviews with that bank’s cofounders.

The chapter provides a rich description of how social innovation through social investment created a meaningful social impact. Important lessons and useful recommendations are drawn for social enterprises that are committed to social innovation in the financial services industry.

The chapter provides insights into the ShoreBank case based on a unique set of data. It offers useful recommendations for social enterprises.

Recent developments in technology and research have brought new innovations into the finance sector. Applying mathematics and computer science into finance has developed a multidisciplinary financial engineering field, where new quantitative and complex financial products are supplied to investors. In this chapter, we describe financial technologies as high-frequency trade; investment vehicles as mutual, exchange-traded, and hedge funds in the finance sector with figures of past 10 years and their impact in international trade volume. Financial derivatives are innovative products where investor may mitigate risk on their domestic and international transactions. The author also discusses cryptocurrencies as an important tool in innovation.