The Impact of Fintech Development on Commercial Banks' Profitability

Abstract

Fintech is the creative application of technology in developing and delivering financial products and services. Studying its impact on the banking sector, mainly commercial banks, is interesting. Using panel data of 210 Chinese commercial banks from 2011-2018, fixed effects estimation was used to examine the impact of Fintech development on banks' profitability. The findings indicate that Fintech development is significantly and negatively related to bank performance, i.e., Fintech development significantly weakens bank performance. The results are robust to using different Fintech and bank profitability indicators based on endogeneity analysis. On this basis, the heterogeneity factor of the above relationship is also investigated, and it is found that loose monetary policy weakens the negative effect of Fintech on bank profitability. Moreover, for commercial banks with solid monopoly power, the negative impact of Fintech on their performance is mitigated accordingly.