Journal of Operational Risk

How does fintech affect the revenue and risk of commercial banks? Evidence from China

Lixia Yu, Zhenghan Li and Liujue Li

  • The development of fintech has had a significant positive effect on the revenue of commercial banks in China.
  • Fintech development and banks’ risk shows a L-shape non-linear relationship. After excluding gap disturbance, FinTech significantly reduces the risk for the majority of banks.
  • In terms of revenue, fintechh has a greater positive effect on national commercial banks.
  • Fintech makes the risk changes of regional commercial banks more significant.

Financial technology (fintech) has driven a profound transformation in the finance industry, and the application of various new technologies in the financial sector has brought about changes in the operating environment faced by commercial banks. To assess the impact of fintech on commercial banks, we selected Chinese commercial banks as sample data, calculated the fintech application index at the individual bank level using text mining methods and principal component analysis, and conducted empirical tests using fixed-effect panel regression models. Our results indicate that the application of fintech can effectively increase a bank’s revenue. In terms of risk, using binned groups analysis we found that the development of fintech has a nonlinear, roughly L-shaped relationship with the risk of commercial banks. Further, we also considered the characteristics of the Chinese banking industry for further analysis of the impact of bank-type heterogeneity and to control for sample differences. In addition, we enhanced the robustness of the empirical results using substitution variables, instrumental variable methods and propensity score matching. In conclusion, starting from a new perspective on fintech, using the Chinese banking industry as an example, we offer suggestions for developing the fintech capabilities of banks in developing countries.

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