Abstract
The expansion of fintech credit around the world is challenging the global banking system. This study investigates the interrelationships between the development of fintech credit and the efficiency of banking systems in 80 countries from 2013 to 2017. The findings indicate a two-way relationship between them. More specifically, a negative relationship between bank efficiency and fintech credit implies that fintech credit is more developed in countries with less efficient banking systems. Meanwhile, a positive impact of fintech credit on the efficiency of banking systems suggests that fintech credit may serve as a wake-up call to the banking system. Therefore, fintech credit should be encouraged by the authorities around the world.
Highlights
This study investigates the causal relationship between fintech credit and banking efficiency in 80 countries from 2013 to 2017 using a two-stage framework
DEA with the use of financial ratios was employed to estimate the efficiency of the banking systems around the world
The findings of the first stage show that the average efficiency scores of these banking systems are relatively low, suggesting that there is still room for them to improve
Summary
The literature can be divided into two strands. The first strand focuses on the relationship between the emergence of financial technology (fintech) firms and the banking system. 2021, 9, 44 bank that faces difficulty in distinguishing old from new customers may act as a quiet fat cat, because it needs to secure the profitability derived from its huge client base This may permit fintech firms to enter the market and serve unbanked people or/and technology-savvy customers. Given the presence of fintech credit in the marketplace, incumbent banks may respond to it in several ways, such as cooperating with new entrants, acquiring them partially or completely, or competing with them directly These strategies depend on whether an investment would make a firm more competitive or more vulnerable in the competitive market. Given the emergence of fintech credit in the financial market, our study is the first attempt to examine whether a two-way relationship between fintech credit and bank efficiency exists
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