The Impact on Digitalization on Financial Sector Performance

Abstract

The aim of this study is to analyze the effects of digitalization and artificial intelligence applications on financial performance of banks which emerged as a result of developments in information and communication technologies (ICT). In this paper, the role of financial system in the modern economy, as well as the impact of technological change and financial innovation on the structure of the financial sector are tried to be explained. In this context, the literature and its findings are evaluated to explain the impact of financial innovations classified as new production processes and new products or services on the performance of financial sector. Finally, important examples of how fintech transform the structure of the banking sector are provided. In this analysis, technical efficiency scores of banks representing the performance of the financial sector were used as the main determinant variable. The data set of 26 commercial banks active in the Turkish banking sector between the years of 2010 and 2016 constitute the sample size of the study. While technical efficiency scores of each bank are obtained by Data Envelopment Analysis (DEA), the effect of digitalization on financial performance is estimated by using “truncated regression model combined with bootstrap confidence intervals.” According to the results of the truncated regression model, digitalization has a positive effect on financial performance.