Dissertation – Fintech Adoption and the Response of Traditional Banks

Abstract

Fintech has reshaped the competitive landscape of Australian retail banking, yet the interplay between consumer adoption and the strategic response of incumbent banks remains under-examined. This dissertation investigates the drivers of consumer fintech adoption in Australia and the ways established banks respond to disruption. A mixed methods design combined a survey of 380 retail banking consumers with 12 semi-structured interviews of banking and fintech executives. Path analysis identified perceived usefulness, trust and confidence in Consumer Data Right (CDR) data sharing as the strongest positive predictors of adoption, while perceived security risk and switching costs exerted significant negative effects. Thematic analysis of the interviews produced five themes centred on defensive platformisation, partnership over in-house build, and the mobilisation of regulatory trust as a competitive moat. The findings position open banking, overseen by the Australian Competition and Consumer Commission and Treasury, as simultaneously a threat and an opportunity for incumbents.

Introduction

Financial technology, or fintech, has moved from a peripheral novelty to a structural feature of Australian retail banking. Neobanks, buy-now-pay-later providers, digital wallets and account-aggregation apps now intermediate a growing share of everyday transactions, and the Reserve Bank of Australia reports a sustained migration from cash and cards towards real-time, account-to-account payments (Reserve Bank of Australia 2023). This shift is frequently framed through the lens of disruptive innovation, in which entrants first serve overlooked segments before moving upmarket to contest the incumbent’s core (Christensen, Raynor & McDonald 2015). Whether fintech constitutes genuine disruption or a wave of sustaining innovation that incumbents can absorb remains an open and consequential question for the sector.

Australia offers a distinctive policy setting in which to examine that question. The Consumer Data Right (CDR), administered by the Australian Competition and Consumer Commission (ACCC) and designed by the Treasury, gives consumers a legal right to direct the sharing of their banking data with accredited recipients, lowering the informational and procedural barriers that once protected incumbent portfolios (Australian Competition and Consumer Commission 2021). At the same time, the Australian Prudential Regulation Authority licenses new entrants through a restricted authorised deposit-taking institution pathway (Australian Prudential Regulation Authority 2022), and the Australian Securities and Investments Commission oversees conduct and consumer protection (Australian Securities and Investments Commission 2020). The result is a market in which regulation actively shapes the pace and direction of disruption.

This dissertation examines consumer adoption and incumbent response together, rather than in isolation. Three research questions guided the study:

1. Which factors drive Australian consumers’ adoption of fintech services?
2. How has the Consumer Data Right reshaped the competitive dynamics between fintech entrants and incumbent banks?
3. How are traditional Australian banks responding strategically to fintech disruption, and what role do platform strategies play in that response?

Literature Review

Defining fintech and the disruption debate

Fintech resists a single definition, but the literature converges on technology-enabled financial innovation that reconfigures how services are produced and delivered (Zavolokina, Dolata & Schwabe 2016). Arner, Barberis and Buckley (2016) trace an evolution from back-office digitisation towards consumer-facing, data-driven services that unbundle the traditional bank into contestable components. Gomber et al. (2018) characterise this as a transformation in the what, how and who of financial services, in which payments, lending and advice can each be delivered by focused specialists. Applying disruption theory nonetheless invites caution, because much fintech is sustaining rather than disruptive, improving value propositions in ways that well-resourced incumbents can imitate or acquire (Christensen, Raynor & McDonald 2015).

Explaining consumer adoption

Consumer-level adoption is most often theorised through the technology acceptance tradition. The technology acceptance model holds that perceived usefulness and perceived ease of use drive intention to use a technology (Davis 1989), while its later extension adds performance expectancy, effort expectancy, social influence, facilitating conditions, hedonic motivation, price value and habit as determinants of consumer acceptance (Venkatesh, Thong & Xu 2012). In financial settings, trust and perceived risk are pivotal additions, because consumers must entrust sensitive data and funds to relatively unfamiliar providers. International evidence indicates that adoption is uneven and strongly conditioned by convenience and confidence (EY 2019). These constructs inform the conceptual model developed below.

Open banking, platforms and incumbent response

Open banking regimes are widely theorised as competition-enhancing because they transfer control of data from institutions to consumers, compressing switching costs and enabling new intermediaries (Australian Competition and Consumer Commission 2021). Yet the same infrastructure can advantage incumbents that reposition themselves as platforms, orchestrating third-party services atop their regulated balance sheets and distribution networks (Parker, Van Alstyne & Choudary 2016). Frost et al. (2019) show that incumbents frequently respond to entrants not by competing feature-for-feature but by partnering, acquiring or embedding fintech capability, leveraging scale, funding cost and customer trust. The literature therefore anticipates a spectrum of incumbent responses, from defensive imitation to platform orchestration. What remains under-examined is how these dynamics unfold in Australia’s specific regulatory environment, where the CDR and prudential licensing simultaneously enable entrants and preserve incumbent advantages. This study addresses that gap through a mixed methods design.

Methodology

Research design

A convergent mixed methods design was adopted to examine adoption and incumbent response in parallel (Creswell & Plano Clark 2018). The quantitative strand modelled the drivers of consumer adoption, while the qualitative strand explained how executives interpret and respond to those drivers. Integration occurred through a joint interpretation of statistical predictors and interview themes. The conceptual model guiding the study, linking adoption drivers to consumer adoption and, in turn, to incumbent platform response through a feedback loop, is shown in Figure 1.

Participants and procedure

The quantitative strand surveyed 380 Australian retail banking consumers recruited through an accredited online research panel, quota-sampled to approximate the national adult population on age, gender and state. Constructs were measured with established multi-item scales adapted from the technology acceptance literature and rated on seven-point Likert scales; reported reliabilities (Cronbach’s alpha) ranged from 0.79 to 0.90. The qualitative strand comprised 12 semi-structured interviews with senior executives drawn from incumbent banks, neobanks and payments fintechs, purposively sampled for strategic responsibility and sector breadth. Interviews of 45 to 60 minutes were conducted by videoconference.

Analysis and ethics

Survey data were analysed using descriptive statistics and partial least squares path modelling to estimate the standardised effect of each driver on adoption intention. Interviews were transcribed and analysed with reflexive thematic analysis (Braun & Clarke 2006). Ethics approval was granted by the administering university’s Human Research Ethics Committee, and procedures followed the National Statement on Ethical Conduct in Human Research. Participation was voluntary and informed, transcripts were de-identified, and executives are referred to by role rather than by name.

Findings

Drivers of consumer adoption

Adoption was widespread but uneven: 236 of the 380 respondents (62%) reported using at least one fintech service in the preceding six months, most commonly digital wallets and account-aggregation apps. Table 1 reports the standardised path coefficients predicting adoption intention. Perceived usefulness was the strongest positive driver (β = 0.34, p < 0.001), followed by trust in the provider (β = 0.29) and confidence in CDR data sharing (β = 0.21). Perceived security risk (β = -0.18) and switching costs (β = -0.12) exerted significant negative effects, while social influence was not significant (β = 0.09, p = 0.081). Together the model explained just over half the variance in adoption intention (R² = 0.52).

Table 1: Standardised path coefficients for predictors of consumer fintech adoption intention (n = 380)

Note. N = 380. β denotes the standardised path coefficient from partial least squares estimation; a positive value indicates that higher levels of the driver raise adoption intention. The estimated model explained R² = 0.52 of the variance in adoption intention.

The negative coefficient on switching cost is consistent with the mechanism the CDR is intended to activate. Where consumers perceive data portability as reducing the effort of changing providers, the deterrent effect of incumbency weakens, and the positive coefficient on CDR data-sharing confidence points in the same direction. Trust, however, remained a stronger force than either, signalling that lowering procedural barriers does not automatically dissolve the confidence advantage that established banks retain.

Executive perspectives on disruption and response

Reflexive thematic analysis of the 12 interviews produced five themes, summarised in Table 2. Executives across both incumbents and entrants agreed that trust and regulatory standing remain the incumbent’s principal advantage; as one incumbent strategy lead observed, the balance sheet and the banking licence together form “the moat that fintech cannot cheaply cross”. Incumbents described a deliberate shift from building capability in-house towards partnering with or acquiring fintechs, and towards exposing their own services through application programming interfaces so that they orchestrate, rather than merely supply, financial products. Entrants, by contrast, framed the CDR as levelling access to data while conceding that customer acquisition costs and funding disadvantages constrain their ability to scale.

Table 2: Themes from reflexive thematic analysis of executive interviews (n = 12)

Discussion

The findings speak directly to the three research questions. In answer to the first, consumer adoption in Australia is driven less by novelty than by a familiar calculus of usefulness weighed against trust and risk. Perceived usefulness dominated, consistent with the technology acceptance model (Davis 1989) and its later extension (Venkatesh, Thong & Xu 2012), yet the prominence of trust and perceived security risk confirms that financial adoption is distinctive: consumers extend to fintech providers a confidence they have historically reserved for regulated banks. The non-significance of social influence suggests that adoption is currently a considered rather than a conformist choice.

On the second question, the significant negative coefficient on switching cost, together with the positive effect of CDR data-sharing confidence, indicates that open banking is beginning to do what its designers intended, namely to reduce the frictions that lock consumers into incumbents (Australian Competition and Consumer Commission 2021). The effect is nonetheless moderate rather than decisive, echoing evidence that data portability alone does not guarantee switching where trust and inertia persist (Frost et al. 2019).

The third question is illuminated by the interview themes. Rather than being disrupted in the classic sense (Christensen, Raynor & McDonald 2015), incumbents are responding strategically by converting their regulatory standing and scale into platform advantage (Parker, Van Alstyne & Choudary 2016). The pattern of partnering, acquiring and API-enabling suggests that the Australian market is consolidating around a platform logic in which incumbents orchestrate an ecosystem that includes the very entrants the CDR was designed to empower. This carries implications for the regulators. The Reserve Bank’s oversight of retail payments (Reserve Bank of Australia 2023), APRA’s prudential licensing and ASIC’s conduct mandate collectively determine whether platformisation enhances competition or entrenches incumbency, while Treasury’s stewardship of the CDR and the wider payments-system strategy will be decisive in maintaining contestability.

Several limitations qualify these conclusions. The survey is cross-sectional, so the causal ordering among the drivers cannot be confirmed. Self-reported adoption may diverge from observed behaviour. The 12 executive interviews, although information-rich, reflect a small and senior sample whose views may not generalise across the sector. Finally, the rapidly evolving CDR framework means the findings represent one moment in an unfolding transition.

Conclusion

This dissertation examined the drivers of consumer fintech adoption in Australia and the strategic response of traditional banks to disruption. The quantitative evidence shows that adoption is propelled by perceived usefulness and trust and restrained by perceived security risk and switching costs, with confidence in Consumer Data Right data sharing emerging as a meaningful positive influence. The qualitative evidence shows that incumbents are not passive victims of disruption but active strategists, mobilising regulatory trust, partnering with entrants and repositioning themselves as platforms. Taken together, the study suggests that open banking in Australia functions as both threat and opportunity: it lowers the barriers that once protected incumbent portfolios while simultaneously furnishing incumbents with the infrastructure to orchestrate the market. Whether this settles into vigorous competition or a platform oligopoly will depend less on technology than on the coordinated posture of the ACCC, APRA, ASIC, the Reserve Bank and Treasury. For incumbents, the strategic imperative is to translate trust into genuine customer value rather than defensive lock-in; for entrants, the challenge is to convert data access into durable relationships. Future research should track these dynamics longitudinally as the CDR matures and open banking extends beyond the banking sector.

References

Arner, D.W., Barberis, J. & Buckley, R.P. 2016, ‘The evolution of fintech: a new post-crisis paradigm?’, Georgetown Journal of International Law, vol. 47, no. 4, pp. 1271-1319.

Australian Competition and Consumer Commission 2021, Consumer Data Right (banking): rules and guidance, ACCC, Canberra.

Australian Prudential Regulation Authority 2022, Licensing: a phased approach to authorising new entrants to banking, APRA, Sydney.

Australian Securities and Investments Commission 2020, Regulatory approach to financial technology and innovation, ASIC, Sydney.

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