FinTech, bank risk-taking, and credit allocation

Over the past decade, FinTech has emerged as a pivotal catalyst for diversifying the operational landscape of commercial banks and fostering innovation in their revenue streams. However, the influence of FinTech on bank risk profiles and its heterogeneous efficacy across various credit segments warrant closer examination. Utilizing a dataset encompassing 587 commercial banks from 2015 to 2022, this study examines the impact of FinTech on bank risk-taking, with a focus on credit allocation as a key mechanism through which FinTech influences credit risk management. The study reveals three key insights: (1) FinTech augments banks’ proactive risk-taking while simultaneously curbing their exposure to passive risk; (2) FinTech demonstrates notable efficacy in mitigating risks in micro and small credit and retail credit sectors, with less pronounced effects in corporate credit; (3) The risk-preventive impact of FinTech is particularly pronounced in regional banks, albeit with regional differences in its effectiveness. In light of these findings, we propose that commercial banks actively adopt FinTech advancements and expand their application across various credit domains. Banks are encouraged to capitalize on their unique strengths to refine FinTech integration. Furthermore, we advise regulatory bodies to enhance their supervisory capabilities and cultivate regulatory technology to preempt and mitigate potential systemic risks stemming from FinTech advancements.