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FinTech development and financial system stability in South Africa

Author

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  • Otchere, Isaac
  • Rahman, Mohammad Ziaur
  • Simbanegavi, Witness

Abstract

We examine the impact of FinTech formations on the default risk of incumbent financial institutions in South Africa and find that the growth of FinTech firms reduces the bankruptcy risk, credit risk, and stock return volatility of banks and other financial institutions. Further analysis shows that the risk reduction impact of FinTech development is more pronounced for smaller banks compared to their larger counterparts. Overall, our results are consistent with the notion that FinTech formations generally enhance the efficiency of risk management and reduce the default risk of incumbent financial institutions. However, the relationship is nonlinear, suggesting that initial collaboration, which reduces default risk, could turn into increased competition as more FinTech firms enter the market. From a policy standpoint, efforts to promote more collaboration should be encouraged, but regulators must be cautious of potential systemic risk.

Suggested Citation

  • Otchere, Isaac & Rahman, Mohammad Ziaur & Simbanegavi, Witness, 2026. "FinTech development and financial system stability in South Africa," Pacific-Basin Finance Journal, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:pacfin:v:99:y:2026:i:c:s0927538x26001502
    DOI: 10.1016/j.pacfin.2026.103204
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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