Business model innovation dynamic capability in the South African fintech industry

Abstract

The fintech industry has seen significant growth since the 2008 financial crisis, and financial technology innovation is viewed as an important contributor to financial inclusion, especially in developing countries. Yet, business model innovation in the fintech industry remains a nascent area of academic research, both globally and in South Africa. Little has been published on the properties of the organisational capabilities that underpin business model innovation, and limited research has been conducted in the South African fintech sector. The objective of this study was to uncover the multi-level causal mechanisms that allow a business model innovation dynamic capability to emerge. A qualitative case study research design, utilising a critical realist, grounded theory method was employed in this study. Business model innovation and the organisational capabilities that underpin this phenomenon were investigated in five fintech firms situated in Gauteng and the Western Cape. Dynamic Capability and Complex Adaptive Systems theoretical perspectives were employed to explicate a Dynamic Capability-Complex Adaptive Systems (DC-CAS) explanatory framework as the basis of fintech business model innovation. This study identified nine causal mechanisms including a Problem Framing Mechanism, Resource Deployment Mechanism, Strategic Prioritisation Mechanism, Market Fit Mechanism, Resource Protection Mechanism, Measured Risk-Taking Mechanism, Leveraging Equity Mechanism, Regulatory Alignment Mechanism and Value Proposition Alignment Mechanism. The DC-CAS explained how these causal mechanisms interacted to enable business model innovation. A further output of the study is a managerial framework to provide practical guidance on the development and application of business model innovation dynamic capabilities. This study also makes policy recommendations to facilitate the development of the fintech sector in South Africa. In conclusion, this study contributes to our understanding of the emergence of business model innovation dynamic capability by explicating the complex organisational and environmental context within which it is situated.