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Fintech startups and bank cost efficiency in Taiwan: Disruption or complementarity?

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  • Cho, Tsui-Yueh
  • Chen, Yi-Shuan

Abstract

The expansion of fintech startups is reshaping financial services and influencing bank performance. Using 418 bank-year observations for 35 Taiwanese banks (2012–2023), we examine how fintech activity affects banks' meta-frontier cost efficiency. Efficiency is measured with Data Envelopment Analysis and cross-validated with a Stochastic Frontier Analysis meta-frontier. Dynamics effects are estimated using two-step system GMM. The results indicate that fintech growth raises technical and scale efficiency but reduces allocative efficiency; the allocative drag dominates, resulting in an overall decline in cost efficiency. The adverse effect is concentrated in large FHC banks and is amplified during COVID, consistent with transitional frictions arising from scale, organizational complexity, and rapid digital adoption. By contrast, cross-bank variation in digital-account adoption does not systematically moderate fintech's cost impact. Results suggest that digital readiness must be paired with allocative and scale discipline for incumbents to absorb fintech-driven cost pressures.

Suggested Citation

  • Cho, Tsui-Yueh & Chen, Yi-Shuan, 2026. "Fintech startups and bank cost efficiency in Taiwan: Disruption or complementarity?," Economic Modelling, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:ecmode:v:161:y:2026:i:c:s0264999326001501
    DOI: 10.1016/j.econmod.2026.107621
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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