Financial technology, inclusive finance and bank performance

Abstract

In recent years, the Chinese banking industry has increasingly used financial technology (FinTech) to increase the credit supply to key areas of inclusive finance, as “impulse” and “fee reduction and profit-sharing” behaviours have exerted pressure on bank performance. This paper analyses the impacts of FinTech on bank performance and the risk adjustment mechanism of FinTech.The results show that, first, when banks issue inclusive loans, the phenomenon of increasing the balance without a corresponding increase in profits, or even resulting in no profits develops because of cost-benefit asymmetry. “Doing business at a loss” negatively impacts bank performance; these losses are primarily associated with small and micro enterprises (SMEs). Second, digital inclusive finance effectively mitigates the negative impacts of traditional inclusive loans, and FinTech boosts bank performance. Third, the positive effects of FinTech are attributable to risk adjustment effects that reduce information asymmetry and transaction costs.This paper demonstrates that digitalisation empowered by FinTech has improved the service efficiency and customer experience of inclusive finance, as well as other business income and bank performance. Banks must be cautious when analysing the risks and benefits afforded by internet platform flow-data. Each head office should formulate a digital financial strategy and unify the deployment of innovative FinTech applications. Bank branches should promote such transformation but must engage in digital inclusive finance differently, based on the level of local FinTech development. This optimises the allocation of credit resources.