A Phenomenon-driven Exploration of Regulatory Sandboxes in FinTech Entrepreneurial Ecosystems

Abstract

Research on incubation models has indicated that business incubators and accelerators, among others, are crucial catalysts for the development of new ventures in numerous industries. To facilitate testing and validation of new financial technology (FinTech) providers, and protect financial markets against systemic risks, a new incubation model called the ‘regulatory sandbox’ has been established or announced by regulatory authorities in more than 50 countries. Sandboxes are virtual trial-and-error instruments that grant financial market participants temporary licensing relief and thus provide the opportunity to test novel solutions in a controlled, real-world environment and engage with regulators who offer guidance and supervision. Despite the potential benefits of sandboxes for innovation and financial market stability, the management literature on the phenomenon is scarce, limiting our understanding of how regulatory sandboxes operate, how they differ from other incubation models and how regulator-regulatee interactions enable innovation and regulation practices. This doctoral dissertation addresses these gaps. In addition to the empirical exploration of regulatory sandboxes, an ecosystem perspective to entrepreneurship is adopted to understand how interactions among ecosystem actors contribute to new ventures in the FinTech context that hosts sandboxes. Conceptually, this study also reviews the literature on innovation facilitators and offers a research agenda. Grounded in a critical realist paradigm, the key methodological choices feature a qualitative research design driven by an exploratory-abductive approach and the Gioia methodology. With regard to data, 35 semi-structured interviews have been conducted, 39 archival documents from 5 leading regulatory sandboxes analysed and 46 research articles content analysed. The key contribution of this research is to the incubation literature by extending our knowledge of a unique incubation model and establishing a knowledge-based foundation for future research. Additionally, important contributions are made to the emerging fields of entrepreneurial ecosystems and FinTech research by conducting an empirical exploration and suggesting theoretical propositions to motivate future research.