Our research

SFiC is the first interdisciplinary research centre to focus on financial technology (FinTech) and financial innovation.

Financial Technology (FinTech)

Financial Technology (FinTech) is the future of the Finance industry. New digital technologies have begun to disrupt banking and insurance markets and will continue to shape the financial sector over the coming years. The FinTech revolution was sparked by the introduction of crowdfunding and alternative sources of finance, and has grown to include multi-billion marketplaces where individuals and businesses source credit from investors. A key advantage of digital marketplaces over traditional financial intermediaries is providing faster and cheaper access to credit, which enables start-up and business growth. 

This research theme embodies the effects of different types of crowdfunding (equity-based and reward-based), and issues related to how the nascent FinTech sector influences the banking industry, financial institutions and regulatory bodies. Understanding how the rapidly expanding FinTech industry affects these sectors, and consumer welfare, are top priorities for the design of regulation.

A person holding a phone with a financial app on it with a laptop in the background


The banking and finance sector is Birmingham has witnessed a remarkable growth over the past few years (second largest Business, Professional and Financial Services sector outside London). The size of Birmingham’s banking sector is 10,700 employees in 230 companies. FinTech has become a recent trend with 7,500 tech firms employing over 40,000 people; boosting the economy by £2.3 billion every year; in sum (WMGC).

Sustainable finance

This research theme includes environmental and green finance. Motivated by the threat of climate change the Bank of England governor Mark Carney and François Villeroy de Galhau, governor of the Banque de France, state, “If some companies and industries fail to adjust to this new world, they will fail to exist”. The visible, catastrophic, effects of climate change have been observed in recent Californian wildfires, typhoons in south-east Asia and droughts in Africa and Australia. These episodes have devastated infrastructure, ruined natural habitats and inflicted suffering on our collective wellbeing. Governments have sought to alleviate the effects of climate change through the Paris Agreement. Part of this strategy focuses on climate-related financial risks that mitigate and limit the rise in global temperatures. This requires policymakers and prudential supervisors to instigate changes in governance and regulation to ensure companies comply with the requirements of the green and low-carbon economy.
Plant growing from a pile of coins spilled from a money jar

Research on sustainable and ethical finance has implications on risk management, governance and financial institutions. For example, integrating sustainability into their own portfolio management in addition to disclosure. This research theme is challenging, timely and urgent for regulators and financial institutions to continue to raise the bar to address these climate-related risks and to “green” the financial system. Sustainable finance research aligns with the overall strategy of BBS as it develops an agenda around Responsible Business. 

Our Current Projects

Did the furlough scheme and mortgage holidays prevent mortgage default?

This paper shows that banks’ cost of deposits increase following exposure to the Fintech sector. We exploit the exogenous, staggered removal of restrictions on investing through peer-to-peer lending platforms by US states. The entry of Lending Club and Prosper cause the cost of deposits to increase by approximately 11% as banks face more intense competition for deposit funds. Banks’ liability structure also shifts towards greater reliance on non-deposit funding. The findings provide regulatory insights into the unintended consequences, and potentially destabilizing effects, of the nascent Fintech sector on the banking industry.

  • McGowan, D; Gortz, C. (2020) Did the furlough scheme and mortgage holidays prevent mortgage default?

The Digital Credit Divide: Marketplace Lending and Entrepreneurship 

The COVID-19 crisis has inflicted serious financial hardship upon UK households. By May 2020 14% of borrowers were behind on their mortgage payments. To mitigate the economic damage, the government introduced unprecedented economic policies that provide income and job protection support. We investigate to what extent the Coronavirus Job Retention Scheme (furlough) and the mortgage holiday (MH) policy introduced by banks reduced the incidence of mortgage default during the crisis. By safeguarding jobs and subsidizing a worker’s monthly wages, the furlough scheme may allow distressed borrowers to avoid default and continue making monthly mortgage payments. MHs may directly lower the incidence of default by deferring repayment until a later date. However, their limited duration may constrain the policy’s effectiveness and shift the timing of default to the future. We develop a model of mortgage default that incorporates both policies. Using the model, state-of-the-art macroeconomic methods, and household survey data collected since April 2020 by the Understanding Society database, we quantify how many defaults the policies prevented. We do so at the national and regional levels because the economic impact of the pandemic has impacted UK regions to varying degrees. Furthermore, we study whether the policies have different effects according to a borrower’s age, ethnicity and income which influence savings and a person’s ability to withstand an income and employment shock. Our research helps understand the effectiveness of the furlough and MH policies, and provides guidance to tailor and optimize their future design.

The Digital Credit Divide: Marketplace Lending and Entrepreneurship

We conjecture that marketplace lending provokes an increase in the quantity of entrepreneurship, particularly in more regionally disadvantaged areas, albeit at lower average quality. Using a fuzzy regression discontinuity design that exploits exogenous variation in borrowers’ access to marketplace loans along US state borders, we estimate a 10% increase in marketplace lending causes a 0.44% increase in business establishments per capita. The effects are more pronounced for less experienced entrepreneurs, for small and less profitable firms, firms more dependent upon external finance, in industries with lower sunk costs of entry, and for low-income regions with inferior access to financial institutions.

Furlough and Household Financial Distressduring the COVID-19 Pandemic

We study how furlough affects household financial distress during the COVID-19 pandemic.Furlough increases the probability of late housing and bill payments by 30% and9%, respectively. The effects exist for individuals who rent their home, but not mortgageeswho can mitigate financial distress by reducing expenditure during furloughby deferring mortgage payments though the Mortgage Holiday Scheme. Furloughedindividuals significantly reduce expenditure and spend their savings to offset furloughinducedincome reductions. This creates wealth inequality but lowers the probability afurloughed worker experiences financial distress after returning to work. Estimates showan 80% government contribution to furloughed workers’ wages

Causal effects of neighborhood segregation on economic outcomes

Neighbourhoods around the world are often segregated by race, ethnicity, and religion. Understanding the socioeconomic consequences of segregation is dominated by descriptive evidence showing segregated areas tend to have more crime, worse employment and lower wealth. A key question is, why do these disparities exist? Existing evidence overwhelmingly focuses on the composition of people living in segregated neighbourhoods. They tend to come from minority backgrounds with lower educational qualifications resulting in lower incomes and wealth. Integrating ideas from sociology, history and finance, we explore for the first time whether segregation influences these economic outcomes through the housing market. We use data from archival sources, an experiment, and state-of-the-art machine learning algorithms. The econometric research design is novel, because it isolates causal inferences and produces results that are informative about segregation’s economic repercussions in other settings. 

Lead- Danny McGowan 

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