The Heterogeneous Effects of Internet Finance on the Profits of Commercial Banks in China

Abstract

Since 2012, the Internet finance (ITFIN), as a rising star in the financial industry, has impacted the traditional finance with its unique operating model and market transmission path. Our work explores the role of ITFIN on the profit structure and profitability of commercial banks from a new perspective of market structure. Based on the research on the mechanism of action, we construct an econometric model and conduct an empirical analysis: our panel data model contains the main indicators disclosed by 16 representative commercial banks from 2010 to 2018, including the total asset profit rate and the three major business development data (asset, liability, and intermediary business), and tests the specific impact of ITFIN on the profitability of commercial banks. Our work draws the following conclusions and implications: First, the development of ITFIN will promote the profitability of commercial banks, and it will promote the diversified development of commercial banks’ profit structure. Therefore, in the development process, the commercial banks should pay attention to win-win cooperation and develop financial technology, while optimizing market structure and integrating financial resources to promote the optimization of the market economy system. Second, the impacts of ITFIN on the profitability of different types of commercial banks are heterogeneous. The effects on the profitability of state-owned are more significant, while the effects on the diversified development of the municipals are more favorable. Therefore, when developing, the commercial banks should actively change their business philosophy, deepen the financial market, reasonably make market positioning and behavioural decisions based on their development, and improve the market competitiveness.