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Fintech revolution in banking: A double-edged sword?

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  • Khan, Habib Hussain
  • Qureshi, Fiza
  • Ahmad, Mohammad Rais
  • Anwar, Ayesha

Abstract

We develop a novel bank-level index of fintech integration by mitigating media bias in index construction. We then explore its relationship with bank stability across 56 economies from 2010 to 2022. We uncover a U-shaped relationship between this index and bank stability. Initially, fintech increases bank fragility, but as integration deepens, it ultimately enhances stability. Interestingly, this pattern is influenced by both bank-level and industry-level factors. Strong, foreign-owned banks experience a milder initial decline in stability, reflecting their ability to navigate the fintech landscape effectively. Furthermore, banks operating in developed, competitive markets show a flatter relationship, emphasizing the importance of a supportive ecosystem. The role of regulatory sandboxes varies depending on factors such as bank competition, economic growth, regulatory strength, financial development, and access to credit information. We further validate our findings using an instrumental variables approach and an alternative index of fintech integration, reinforcing the robustness of the identified U-shaped relationship between fintech and bank stability.

Suggested Citation

  • Khan, Habib Hussain & Qureshi, Fiza & Ahmad, Mohammad Rais & Anwar, Ayesha, 2026. "Fintech revolution in banking: A double-edged sword?," Pacific-Basin Finance Journal, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:pacfin:v:96:y:2026:i:c:s0927538x26000211
    DOI: 10.1016/j.pacfin.2026.103075
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