FinTechs Playing in the Regulatory Sandbox—The Effect of Interacting Signals on Funding

Abstract

ABSTRACT Membership in regulatory sandboxes seems to help financial technology ventures (FinTechs) signal their qualities to investors. However, FinTechs have a dual identity, meaning they are both banking firms and entrepreneurial, growth‐oriented ventures, and thus likely send various and potentially conflicting signals. Knowledge of how additional signals might change the effectiveness of sandbox membership remains limited. Drawing on signalling theory, we analyse how two venture‐related signals — entrepreneurial orientation (EO) and venture size — influence the effect of sandbox membership on funding. We examine our model using a panel dataset covering the period from 2015 until 2020, comprising 94 FinTechs from the regulatory sandbox in the United Kingdom and a random control group of 90 comparable FinTechs without sandbox membership. We find signalling sandbox membership to improve FinTechs' funding, while signalling high EO and growth orientation diminishes this effect. Our insights advance research on FinTechs' signalling strategy, suggesting that they should emphasise their banking side over their entrepreneurial, growth‐oriented side when communicating with potential investors.

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