The role of fintech in promoting green finance, and profitability: Evidence from the banking sector in the euro zone

Abstract

Technological innovations have disrupted business models, including those of financial services. New technologies optimize various functional aspects of the banking firms and it is critical to assess if they can expedite green finance while supporting bank profitability. The paper employs a comprehensive sample of European banks between 2011 and 2021 by using a panel fixed effects regression model to study the relationship between the adoption of financial technology and bank profitability. The results show a positive relationship between investment in financial technology and green lending attributable to the search, diligence, and monitoring efficiency of new technologies Similarly, results indicate a direct influence of fintech investment on the risk-adjusted return on capital associated with low cost, expanded product base, and lower economic capital. Findings also show the important role of firm size, human capital efficiency, and market concentration in determining bank profitability and green lending decision. These results have important implications for the role of financial technology in green finance and sustainability-related goals.