The Effect of Fintech Funding on Bank Profitability: A Case of ASEAN-5
Abstract
Many reports on fintech prospects in ASEAN predict that fintech plays a critical role in the digital economy and significantly influences the banking industry, attracting many scholars. However, an investigation of the effect of fintech on bank performance across cross-countries has not yet been conducted. Besides, the reports showed that fintech funding had been dramatically rising in recent years, accelerating fintech startup development. Therefore, the authors are concerned about the “How is the effect of fintech funding on bank performance, especially regarding profitability?”. These are the motives for conducting the study. Using a sample of 57 banks and data on fintech funding from 2017 to 2021 in Malaysia, Philippines, Thailand, Indonesia, and Vietnam, the dynamic panel model is estimated by Panel Corrected Standard Error. The findings show that the growth of fintech funding negatively influences bank profitability, but its lag effect is positive. The results are mostly validated through multiple additional tests (in the context of Covid-19, sorted by country and bank size) and a robustness check by an alternative estimator (Generalized Least Square). Besides, the authors explored some interesting exceptions. In detail, fintech funding does not influence bank profitability in Malaysia and Indonesia, but it negatively links with ROA in Vietnam, and large banks are not sensitive to the growth of fintech funding.
Keywords: fintech funding, bank profitability, ASEAN-5.
Full Text:
PDFReferences
BBVA. Fintech in Emerging ASEAN Trends and Prospects. BBVA Research, 2017. https://www.bbvaresearch.com/wp-content/uploads/2017/07/June-2017-ASEAN-Fintech-Trends1.pdf
MOHAMED H. B. The Future of FinTech in ASEAN. In ANSHARI M., ALMUNAWAR M. N., and MASRI M. (eds.) Financial Technology and Disruptive Innovation in ASEAN. IGI Global, Hershey, 2020: 63–79. https://doi.org/10.4018/978-1-5225-9183-2.ch003
UOB. FinTech in ASEAN: The next wave of growth. The FinLab, 2020. https://thefinlab.com/wp-content/uploads/2020/01/UOB-The-Next-Wave-of-Growth-2018-White-Paper.pdf
PHAN D. H. B., NARAYAN P. K., RAHMAN R. E., and HUTABARAT A. R. Do financial technology firms influence bank performance? Pacific-Basin Finance Journal, 2020, 62: 1–13. https://doi.org/10.1016/j.pacfin.2019.101210
PHAM T. P., POPESKO B., QUDDUS A., HUSSAIN S., and TRAN T. B. Do Fintech-Related keywords influence bank return? A case study from Vietcombank and Sacombank in Vietnam. SCMS Journal of Indian Management, 2021, 18(4): 5–14. https://www.scms.edu.in/past_issues/article?journal_id=81
MUDA R., LATEFF M. S. M., ARSHAD R., RASHDAN A. A., OLADAPO I. A., and OTHMAN J. Does FinTech Revolution Lead to the Disintermediation of Banks? A Study into Islamic Bank Income. In ALAM N., NAZIM ALI S. Fintech, Digital Currency and the Future of Islamic Finance. Springer International Publishing, 2021: 169–185. https://doi.org/10.1007/978-3-030-49248-9_9
BANNA H., & ALAM M. R. Impact of digital financial inclusion on ASEAN banking stability: implications for the post-Covid-19 era. Studies in Economics and Finance, 2021, 38(2): 504–523. https://doi.org/10.1108/SEF-09-2020-0388
ASMARANI S. C., & WIJAYA, C. Effects of fintech on stock return: Evidence from retail banks listed in Indonesia stock exchange. The Journal of Asian Finance, Economics and Business, 2020, 7(7): 95–104. https://doi.org/10.13106/jafeb.2020.vol7.no7.095
IMAN N. Traditional banks against fintech startups: a field investigation of a regional bank in Indonesia. Banks and Bank Systems, 2019, 14(3): 20–33. https://doi.org/10.21511/bbs.14(3).2019.03
MOENJAK T., KONGPRAJYA A., and MONCHAITRAKUL C. Fintech, financial literacy, and consumer saving and borrowing: The case of Thailand. Think Asia, 2020. https://think-asia.org/bitstream/handle/11540/11606/adbi-wp1100.pdf?sequence=1
WONGLIMPIYARAT J. FinTech banking industry: a systemic approach. Foresight, 2017, 19(6): 590–603. https://doi.org/10.1108/FS-07-2017-0026
NAKASHIMA T. Creating credit by making use of mobility with FinTech and IoT. IATSS Research, 2018, 42(2): 61–66. https://doi.org/10.1016/j.iatssr.2018.06.001
SCHELLHASE J., & GARCIA A. FinTech in the Philippines: Assessing the State of Play. Milken Institute, 2019. https://milkeninstitute.org/sites/default/files/reports-pdf/FinTech-in-the-Philippines-Update%20(1)_0.pdf
DINH V., LE U., and LE P. Measuring the Impacts of Internet Banking to Bank Performance: Evidence from Vietnam. The Journal of Internet Banking and Commerce, 2015, 20(2): 1–14. https://doi.org/10.4172/1204-5357.1000103
LE T. T., MAI H. N., PHAN D. T., NGUYEN M. N. T., and LE H. D. Fintech Innovations: The Impact of Mobile Banking Apps on Bank Performance in Vietnam. International Journal of Research and Review, 2021, 8(4): 391–401. https://doi.org/10.52403/ijrr.20210446
LE T. T., & LE N. H. Fintech for promoting financial inclusion in Vietnam: Fact findings and policy implications. Business & Social Sciences Journal, 2018, 3(1): 12–20. http://bssj-re.com/journals/BSSJ-02012018.pdf
UOB. Fintech in Asean 2021: Digital takes flight. Singapore Fintech Association, 2022. https://singaporefintech.org/download/162247/
LI Y., SPIGT R., and SWINKELS L. The impact of FinTech start-ups on incumbent retail banks’ share prices. Financial Innovation, 2017, 3: 1–16. https://doi.org/10.1186/s40854-017-0076-7
ZHAO J., LI X., YU C.-H., CHEN S., and LEE C.-C. Riding the FinTech innovation wave: FinTech, patents and bank performance. Journal of International Money and Finance, 2022, 122: 1–19. https://doi.org/10.1016/j.jimonfin.2021.102552
ALMULLA D., & ALJUGHAIMAN A. A. Does financial technology matter? Evidence from an alternative banking system. Cogent Economics & Finance, 2021, 9(1): 1–21. https://doi.org/10.1080/23322039.2021.1934978
BUCHAK G., MATVOS G., PISKORSKI T., and SERU A. Fintech, regulatory arbitrage, and the rise of shadow banks. Journal of Financial Economics, 2018, 130(3): 453–483. https://doi.org/10.1016/j.jfineco.2018.03.011
CORNELLI G., FROST J., GAMBACORTA L., RAU R., WARDROP R., and ZIEGLER T. Fintech and Big Tech Credit: A New Database. SSRN Electronic Journal, 2020. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3707437
OLALERE O. E., KES M. S. E. M., ISLAM A., and RAHMAN S. The Effect of Financial Innovation and Bank Competition on Firm Value: A Comparative Study of Malaysian and Nigerian Banks. Journal of Asian Finance, Economics and Business, 2021, 8(6): 245–253. https://doi.org/10.13106/jafeb.2021.vol8.no6.0245
VARMA P., & NIJJER S. Examining the Role of Fintech in the Future of Retail Banking. ECS Transactions, 2022, 107(1): 9855–9872. https://doi.org/10.1149/10701.9855ecst
WU G., & YUAN H. The impact of fintech on the profitability of state-owned commercial banks in China. Journal of Physics: Conference Series, 2021, 1955(1): 1–5. https://doi.org/10.1088/1742-6596/1955/1/012007
LEE C. C., LI X., YU C. H., and ZHAO J. Does fintech innovation improve bank efficiency? Evidence from China’s banking industry. International Review of Economics and Finance, 2021, 74, 468–483. https://doi.org/10.1016/j.iref.2021.03.009
FAMA E. F., & FRENCH K. R. Industry costs of equity. Journal of Financial Economics, 1997, 43(2): 153–193. https://doi.org/10.1016/S0304-405X(96)00896-3
BASHAYREH A., & WADI R. M. A. The Effect of Fintech on Banks’ Performance: Jordan Case. In The Importance of New Technologies and Entrepreneurship in Business Development: In the Context of Economic Diversity in Developing Countries. Springer, Cham, 2021: 812–821. https://doi.org/10.1007/978-3-030-69221-6_62
DWIVEDI P., ALABDOOLI J. I., and DWIVEDI, R. Role of FinTech Adoption for Competitiveness and Performance of the Bank: A Study of Banking Industry in UAE. International Journal of Global Business and Competitiveness, 2021, 16(2): 130–138. https://doi.org/10.1007/s42943-021-00033-9
MUSTAPHA S. E-Payment technology effect on bank performance in emerging economies - Evidence from Nigeria. Journal of Open Innovation: Technology, Market, and Complexity, 2018, 43(4): 1–14. https://doi.org/10.3390/joitmc4040043
REGA F. G. The Bank of the Future, the Future of Banking - An Empirical Analysis of European Banks. SSRN Electronic Journal, 2017. https://doi.org/10.2139/ssrn.3071742
SAFIULLAH M., & PARAMATI S. R. The impact of FinTech firms on bank financial stability. Electronic Commerce Research, 2022: 1–23. https://doi.org/10.1007/s10660-022-09595-z
SINGH R., MALIK G., and JAIN V. FinTech effect: measuring impact of FinTech adoption on banks’ profitability. International Journal of Management Practice, 2021, 14(4): 411–427. https://doi.org/10.1504/IJMP.2021.116587
CHEN X., YOU X., and CHANG V. FinTech and commercial banks’ performance in China: A leap forward or survival of the fittest? Technological Forecasting and Social Change, 2021, 166: 1–12. https://doi.org/10.1016/j.techfore.2021.120645
LI J., LI J., ZHU X., YAO Y., & CASU, B. Risk spillovers between FinTech and traditional financial institutions: Evidence from the U.S. International Review of Financial Analysis, 2020, 71: 1–13. https://doi.org/10.1016/j.irfa.2020.101544
AGBOOLA M. G., AWOBAJO K. A., OLUWATOBI S. O., AKINBODE M. O., FAGBOHUN M. O., ESSE U. C., SEGUN-ADENIRAN C. D., ASAOLU A. O., and BETEK C. M. Effect of digitalization on the performance of commercial banks in Nigeria. IOP Conference Series: Earth and Environmental Science, 2019, 331(1): 1–8. https://doi.org/10.1088/1755-1315/331/1/012014
AL-MATARI E. M., MGAMMAL M. H., ALOSAIMI M. H., ALRUWAILI T. F., and AL-BOGAMI S. Fintech, Board of Directors and Corporate Performance in Saudi Arabia Financial Sector: Empirical Study. Sustainability, 2022, 14(17): 1–23. https://doi.org/10.3390/su141710750
KY S. S., RUGEMINTWARI C., and SAUVIAT A. Friends or Foes? Mobile money interaction with formal and informal finance. Telecommunications Policy, 2021, 45(1): 1–31. https://doi.org/10.1016/j.telpol.2020.102057
PU R., TERESIENE D., PIECZULIS I., KONG J., and YUE X.-G. The Interaction between Banking Sector and Financial Technology Companies: Qualitative Assessment—A Case of Lithuania. Risks, 2021, 9(1): 1–22. https://doi.org/10.3390/risks9010021
STULZ R. M. FinTech, BigTech, and the Future of Banks. Journal of Applied Corporate Finance, 2019, 31(4): 86–97. https://doi.org/10.1111/jacf.12378
BUCKLEY R. P., & WEBSTER S. FinTech in developing countries: Charting new customer journeys. Journal of Financial Transformation, 2016, 44: 151–159. https://ssrn.com/abstract=2850091
JÜNGER M., & MIETZNER M. Banking goes digital: The adoption of FinTech services by German households. Finance Research Letters, 2020, 34: 1–8. https://doi.org/10.1016/j.frl.2019.08.008
NICOLETTI B. The Future of FinTech. Integrating Finance and Technology in Financial Services. Palgrave Macmillan, Cham, 2017. http://www.springer.com/series/14627
PHILIPPON, T. The fintech opportunity. NBER Working Paper Series, 2016: 1–25. http://www.nber.org/papers/w22476
AAKER D. A., & KELLER K. L. Consumer Evaluations of Brand Extensions. Journal of Marketing, 1990, 54(1): 27–41. https://doi.org/10.1177/002224299005400102
CHRISTENSEN C. M. The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business School Press, Boston, 1997. https://www.hbs.edu/faculty/Pages/item.aspx?num=46
ELSAID H. M. A review of literature directions regarding the impact of fintech firms on the banking industry. Qualitative Research in Financial Markets, 2021: 1–19. https://doi.org/10.1108/QRFM-10-2020-0197
YUDARUDDIN, R. Financial technology and performance in Islamic and conventional banks. Journal of Islamic Accounting and Business Research, 2022: 1–18. https://doi.org/10.1108/JIABR-03-2022-0070
AHMED R. R., STREIMIKIENE D., ROLLE J.-A., and DUC P. A. The COVID-19 Pandemic and the Antecedants for the Impulse Buying Behavior of US Citizens. Journal of Competitiveness, 2020, 12(3): 5–27. https://doi.org/10.7441/joc.2020.03.01
ANDRONICEANU A. Major structural changes in the EU policies due to the problems and risks caused by COVID-19. Administratie Si Management Public, 2020, 34(34): 137–149. https://doi.org/10.24818/amp/2020.34-08
DINU V., & BUNEA M. The Impact of Competition and Risk Exposure on Profitability of the Romanian Banking System During the COVID-19 Pandemic. Journal of Competitiveness, 2022: 14(2), 5–22. https://doi.org/10.7441/joc.2022.02.01
BAO Z., & HUANG D. Shadow Banking in a Crisis: Evidence from Fintech During COVID-19. Journal of Financial and Quantitative Analysis, 2021, 56(7): 2320–2355. https://doi.org/10.1017/S0022109021000430
DEMIRGÜÇ-KUNT A., PEDRAZA A., and RUIZ-ORTEGA C. Banking sector performance during the COVID-19 crisis. Journal of Banking & Finance, 2021, XXXX: 106305. https://doi.org/10.1016/j.jbankfin.2021.106305
UOB. FinTech in ASEAN 2021: Digital Takes Flight report. UOB Group, 2021. https://www.uobgroup.com/techecosystem/news-insights-fintech-in-asean-2021.html (accessed date 20 May 2022)
MCKINSEY & COMPANY. Digital banking in ASEAN: Increasing consumer sophistication and openness. McKinsey, 2015. https://www.mckinsey.com/~/media/mckinsey/business%20functions/mckinsey%20digital/pdf/digital%20banking%20in%20asean%20(4).pdf
BALTAGI B. H. Econometric analysis of panel data. 3rd ed. John Wiley & Sons, Hoboken, 2005. http://library1.nida.ac.th/termpaper6/sd/2554/19755.pdf
GUJARATI D. N., & PORTER D. C. Basic econometrics. McGraw-Hill, New York, 2009. https://www.cbpbu.ac.in/userfiles/file/2020/STUDY_MAT/ECO/1.pdf
BECK N., & KATZ J. N. What To Do (and Not to Do) with Time-Series Cross-Section Data. American Political Science Review, 1995, 89(3): 634–647. https://doi.org/10.2307/2082979
BLACKWELL J. L. Estimation and Testing of Fixed-effect Panel-data Systems. The Stata Journal: Promoting Communications on Statistics and Stata, 2005, 5(2): 202–207. https://doi.org/10.1177/1536867X0500500205
PARKS R. W. Efficient Estimation of a System of Regression Equations when Disturbances are Both Serially and Contemporaneously Correlated. Journal of the American Statistical Association, 1967, 62(318): 500–509. https://doi.org/10.1080/01621459.1967.10482923
MINH SANG N. Impact of the COVID-19 pandemic on bank efficiency in Vietnam. Banks and Bank Systems, 2022, 17(1): 13–23. https://doi.org/10.21511/bbs.17(1).2022.02
HALLER S. A., & SIEDSCHLAG I. Determinants of ICT adoption: evidence from firm-level data. Applied Economics, 2011, 43(26): 3775–3788. https://doi.org/10.1080/00036841003724411
SCOTT S. V., VAN REENEN J., and ZACHARIADIS M. The long-term effect of digital innovation on bank performance: An empirical study of SWIFT adoption in financial services. Research Policy, 2017, 46(5): 984–1004. https://doi.org/10.1016/j.respol.2017.03.010
HOECHLE D. Robust Standard Errors for Panel Regressions with Cross-Sectional Dependence. The Stata Journal: Promoting Communications on Statistics and Stata, 2007, 7(3): 281–312. https://doi.org/10.1177/1536867X0700700301
Refbacks
- There are currently no refbacks.
