NEW RESEARCH | How new industries become accepted in society

As new industries take shape, innovation is not just about technology. It is also about gaining societal acceptance. Halmstad researchers have studied how the fintech industry in Denmark became legitimate – and what it takes for new ideas to take root.

– For new industries to grow, established structures need to change. We need to understand how institutions can support innovation, not hinder it, says Luiza Stein, doctoral student in Innovation Science at Halmstad University.

As part of a larger European project, her doctoral thesis examined how people, organizations and institutions learn to accept and use new phenomena and technologies. More specifically, she has focused on the emerging fintech industry, where digital technologies are challenging traditional financial service providers, such as banks and insurance companies.

– We mapped the history of the Danish fintech ecosystem, allowing us to analyze how different actors have worked together to create an environment that enables innovation.

Innovation requires institutional change

A key conclusion is that innovation of this kind does not only happen in laboratories and start-up environments – it also requires changes in laws, norms and behaviors.

Luiza Stein has specifically studied how so-called institutional entrepreneurs drive change. These can be companies, trade associations or government agencies that actively work to adapt society’s “rules of the game” to new technologies.

– One example is the coordination of the Second EU Payment Services Directive (PSD2) and its transposition in the Danish context. The active involvement of the authorities in regulatory changes and implementation has allowed pioneering fintech companies – such as Lunar – to obtain special licenses, paving the way for others.

Cooperation and legitimacy – keys to success

The research identifies three factors as crucial for new industries to become legitimate: collaboration, regulation and global linkages.

– A culture of cooperation between start-ups and established companies is crucial. In fintech, for example, small players often need to work with recognized banks to operate within the regulatory framework, explains Luiza Stein.

At the same time, innovation in regulated sectors requires legislation to keep up.

– Regulations often evolve more slowly than technology. In some countries, such as Singapore and the US, the process is faster. In the EU, more flexibility is sometimes needed to avoid slowing down innovation.

Global connectivity is also essential, especially for smaller countries. The Danish fintech ecosystem has therefore linked itself closely to the international scene and was instrumental in the creation of the Nordic FinTech Movement, a network that brings together actors from across the Nordic and Baltic regions.

Challenging the old to create the new

Another insight is that legitimizing the new often requires delegitimizing the old.

– For new solutions to take hold, sometimes you need to show why the old ones no longer work. After the 2008 financial crisis, there was a strong narrative that the old system was broken, and that opened the door for fintech.

The research also shows that innovation at the system level is a complex societal process – where technology, institutions and people interact.

– To enable innovation, we need to change both culture and institutions. This requires dialog, leadership and collective action, says Luiza Stein.

Contact luiza.stein@hh.se

More about the thesis
Luiza Stein will defend her doctoral thesis Legitimation process of new actors and newbusiness-policy partnerships: Developing new industries through collective action on December 5 at Halmstad University, which will be available digitally on Friday 14 November.