Investing in fintech equity and bank innovation

We investigate whether equity investing in fintech startups enhances banks’ own innovation and how this relationship varies across domestic and international partnerships. Using a panel of 160 banks and 772 fintech funding rounds from 2005 to 2023, we match Crunchbase deal data with trademarks and patent filings. We find that bank investments in the equity of fintech firms are associated with more bank innovation capabilities. Effects are strongest for domestic investments, consistent with information advantage. The relationship is also stronger when the target firm is fin-native (lending or payments) versus tech-native (data analytics or reg-tech). These findings suggest that strategic equity stakes may serve as a technology-sourcing channel, informing ongoing debates on bank-fintech partnerships and international diffusion of financial technology. Our findings carry significant implications for policymakers, bank executives, and entrepreneurs alike.