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Heterogeneous Impact of Fintech on the Profitability of Commercial Banks: Competition and Spillover Effects

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  • Xiaoling Song

    (Business School, Beijing Language and Culture University, Beijing 100083, China)

  • Huizhi Yu

    (Tandon School of Engineering, New York University, New York, NY 10012, USA)

  • Zehai He

    (Business School, Beijing Language and Culture University, Beijing 100083, China)

Abstract

Using annual panel data of 46 listed commercial banks in China from 2012 to 2021 and constructing a two-way fixed-effects model, this study empirically analyzed the competition and technology spillover effects of fintech on the profitability of commercial banks. The results showed the following: (1) In the early stages of fintech development, the competition effect was larger than the technology spillover effect; thus, it was negatively correlated with commercial banks’ profitability. However, with the spread of innovative fintech, technology spillover effects and commercial bank profitability will gradually improve. (2) The influence of fintech on the profitability of commercial banks differed. Compared with large commercial banks, fintech had more significant negative effects on small- and medium-sized commercial banks in the short run. However, the role of fintech for such banks will also grow in the future. The results of this study provide practical guidance for how commercial banks can respond to the fintech wave. To realize the sustainable development of the banking industry, commercial banks should change their business philosophy and revenue model, vigorously improve their fintech innovation capability, differentiate their choice of fintech development routes, develop personalized customization with a focus on users, and ultimately realize digital transformation and upgrading.

Suggested Citation

  • Xiaoling Song & Huizhi Yu & Zehai He, 2023. "Heterogeneous Impact of Fintech on the Profitability of Commercial Banks: Competition and Spillover Effects," JRFM, MDPI, vol. 16(11), pages 1-17, November.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:11:p:471-:d:1272885
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    References listed on IDEAS

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    1. Mansurali Anifa & Swamynathan Ramakrishnan & Shanmugan Joghee & Sajal Kabiraj & Malini Mittal Bishnoi, 2022. "Fintech Innovations in the Financial Service Industry," JRFM, MDPI, vol. 15(7), pages 1-19, June.
    2. Zhao, Jinsong & Li, Xinghao & Yu, Chin-Hsien & Chen, Shi & Lee, Chi-Chuan, 2022. "Riding the FinTech innovation wave: FinTech, patents and bank performance," Journal of International Money and Finance, Elsevier, vol. 122(C).
    3. Guo, Pin & Zhang, Cheng, 2023. "The impact of bank FinTech on liquidity creation: Evidence from China," Research in International Business and Finance, Elsevier, vol. 64(C).
    4. Haitham Mohamed Elsaid, 2021. "A review of literature directions regarding the impact of fintech firms on the banking industry," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 15(5), pages 693-711, October.
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    Cited by:

    1. Zhitao Li & Ping Chen, 2024. "Sustainable Finance Meets FinTech: Amplifying Green Credit’s Benefits for Banks," Sustainability, MDPI, vol. 16(18), pages 1-30, September.
    2. Yueyao Wang & Xintong Yu & Qingyuan Yao & Yingnan Lu & Wenjia Che & Jingang Jiang & Sonia Chien-I Chen, 2024. "Assessing the Impact of Financial Technology Innovations on the Sustainable Profitability of Listed Commercial Banks in China," FinTech, MDPI, vol. 3(3), pages 1-12, July.
    3. Ahmad Majid Ahmad Nasser Lootah & Hussein A. Hassan Al Tamimi & Panagiotis D. Zervopoulos, 2024. "Assessing the Impact of M&As’ Motives Influencing the M&A Decision Making Process in the UAE Banking Sector," International Journal of Economics and Financial Issues, Econjournals, vol. 14(3), pages 192-205, May.
    4. Ul-Durar, Shajara & Bakkar, Yassine & Arshed, Noman & Naveed, Shabana & Zhang, Beifan, 2025. "FinTech and economic readiness: Institutional navigation amid climate risks," Research in International Business and Finance, Elsevier, vol. 73(PA).
    5. Zhu, Yi & Lin, Yangyi & Tan, Yanyu & Liu, Bin & Wang, Hao, 2024. "The potential nexus between fintech and energy consumption: A new perspective on natural resource consumption," Resources Policy, Elsevier, vol. 89(C).

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