Is FinTech Eating the

Bank’s Lunch?
Sami Ben Naceur, Bertrand Candelon,
Selim Elekdag, Drilona Emrullahu

WP/23/239

IMF Working Papers describe research in

progress by the author(s) and are published to
elicit comments and to encourage debate.
The views expressed in IMF Working Papers are
those of the author(s) and do not necessarily
represent the views of the IMF, its Executive Board,
or IMF management.

2023
NOV
 © 2023 International Monetary Fund WP/23/239

IMF Working Paper

Institute for Capacity Development

Is FinTech Eating the Bank’s Lunch?

Prepared by Sami Ben Naceur, Bertrand Candelon, Selim Elekdag, Drilona Emrullahu1

Authorized for distribution by Selim Elekdag

November 2023

IMF Working Papers describe research in progress by the author(s) and are published to elicit
comments and to encourage debate. The views expressed in IMF Working Papers are those of the
author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

ABSTRACT: This paper examines how the growing presence of FinTech firms affects the performance of
traditional financial institutions. The findings point to a negative impact on profitability, primarily due to a
reduction in interest income and a rise in operational costs. Although established financial institutions have tried
to diversify their revenue streams, these efforts have proven inadequate to offset the losses associated with
increased competition from FinTech firms. Our study also reveals that various FinTech business models, such
as Peer-to-Peer (P2P) lending and Balance Sheet lending, have varying effects on financial institutions.
Cooperative banks experience more significant profit deterioration under both models, whereas (larger)
commercial banks appear to benefit from partnerships with P2P platforms, as evidenced by an increase in non-
interest income. Furthermore, the findings suggest that FinTech presence has a disproportionately larger
adverse effect on banks in countries with more competitive, profitable, and developed financial systems.
Interestingly, however, traditional financial institutions in countries with stronger regulatory frameworks appear
to benefit from the expanding influence of FinTech firms.

JEL Classification Numbers: G21, G23, G28

Keywords: fintech; bank profitability; competition; business models

[email protected]
[email protected]
Author’s E-Mail Address:
[email protected]
[email protected]

1 Corresponding Author
The authors would like to thank Adolfo Barajas, Ehsan Ebrahimy, Carolina Lopez-Quiles, Paweł Pisany, Celine Rochon, Dmitry
Vasilyev, German Villegas Bauer, Tao Wu and Luisa Zanforlin for their insightful comments. The views expressed herein are those
of the authors and should not be attributed to the IMF, its Executive Board, or its management.

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WORKING PAPERS

Is FinTech Eating the Bank’s

Lunch?
Prepared by Sami Ben Naceur, Bertrand Candelon,
Selim Elekdag, Drilona Emrullahu

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Contents
I. Introduction ...................................................................................................................................................... 5

II. Conceptual Framework .................................................................................................................................. 7

The Complementarity Hypothesis: FinTech presence enhances incumbent’s performance ......................... 8
The Substitution Hypothesis: FinTech presence reduces incumbent’s performance ..................................... 9
The Differential Effect of FinTech Business Models on Incumbent FIs’ Performance ................................. 10
P2P Lending .......................................................................................................................................... 10
Balance Sheet Lending ......................................................................................................................... 11
Types of FIs ........................................................................................................................................... 12

III. Econometric Approach ................................................................................................................................ 12

IV. Sample and Data Sources ........................................................................................................................... 14

V. Results ........................................................................................................................................................... 15
Baseline estimation results ........................................................................................................................... 15
Effect of FinTech Business Models on Incumbent’s Performance ............................................................... 17
Effect of FinTech based on selected country and bank-specific characteristics .......................................... 19

VI. Robustness Checks .................................................................................................................................... 20

VII. Conclusions and Policy Implications ....................................................................................................... 23

Annex I. Variable Names, Definition and Sources ......................................................................................... 24

Annex II. Descriptive statistics, correlations, and stylized facts .................................................................. 25

Annex III. List of Countries included in the Sample ...................................................................................... 28

Annex IV. Digital lending and capital raising activities ................................................................................. 30

Annex V. Emergence of Fintech Transactions Worldwide: Key Stylized Facts .......................................... 31

Annex VI. Detailed Regression Output Tables ............................................................................................... 32

References ......................................................................................................................................................... 59

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I. Introduction
Digital technologies continue to shape the way financial institutions develop and provide financial services.
Recent advances in mobile telecommunications, artificial intelligence, machine learning, cloud services, and
distributed ledger technology have resulted in new financial technologies (FinTech) defined as “new business
models, applications, processes, or products with an associated material effect on the provision of financial
services” (FSB, 2017). Among these, FinTech finance models—which refer to digital lending and digital capital
raising activities—have become increasingly important across the global financial landscape. These activities
involve the use of digital platforms and technologies to provide lending products and raise funds from investors.

Over the past decade, FinTech finance has seen significant growth globally. Despite the regulatory crackdown
in China leading to some reduction, the volume of FinTech finance has consistently shown an upward trend
(Figure 1). While the current volumes of FinTech finance remain relatively modest, estimated at around 2
percent of the total credit in major FinTech markets, there is a strong expectation of rapid growth (World Bank,
2022). According to a recent industry analysis by Allied Research (2021), the global FinTech lending industry is
projected to soar to $4.9 trillion by 2030. Further, investments in FinTech platforms are likely to remain strong
with the total value rising to $217 billion in 2019 from $4 billion in 2012 (Statista, 2022).

Figure 1. FinTech finance volumes (in US$ billions)

Source: Authors calculations using CCAF (2021) Database.

The emergence of new FinTech financing innovations has delivered significant advantages for both traditional
Financial Institutions (FIs) and the wider financial system. Through partnerships with or the development of in-
house FinTech solutions, incumbent FIs can enhance their operational efficiency, expand their product
offerings, and strengthen customer relationships (Petralia and others, 2019). Notably, incumbent FIs
increasingly rely on FinTech firms to provide front-end services such as customer engagement, as well as
middle and back-office operations like Know Your Customer (KYC) verification, credit scoring, loan processing,
and data storage (Feyen and others, 2021; U.S. Department of Treasury, 2022). This collaborative approach
has enabled incumbents to achieve cost efficiency by reducing transaction and monitoring costs, thereby
facilitating faster service delivery (FSB, 2017). Moreover, incumbents can effectively maintain their
competitiveness in the market. For instance, Chen, Wu, and Yang (2019) demonstrate that financial industry
leaders who invest significantly in their own innovation can mitigate much of the negative impact associated
with FinTech competition. Recent evidence from China also indicates that the adoption of FinTech solutions by
banks not only enhances operational efficiency, but also creates more appealing business models for
customers (Wang, Xiuping, and Zhang, 2021).

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At the same time, FinTech firms are exerting pressure on the performance of traditional FIs. These new players
are disrupting the financial landscape by offering improved user experiences and faster processing times.
Buchak and others (2018) emphasize that FinTech lenders provide convenience for borrowers, while Fuster
and others (2019) demonstrate that FinTech platforms can process applications 20 percent faster than other
lenders in the US mortgage lending sector. Furthermore, as a result of stricter regulatory requirements
implemented after the Global Financial Crisis, bank lending has either declined (Cortés and others, 2020), or
become more costly for certain borrower categories, leading to a shift in credit intermediation towards
unregulated financial institutions (Irani and others, 2020). The increased regulatory burdens heightened
supervisory scrutiny, and higher capital requirements have also impacted the range of products and pricing that
incumbent FIs can offer (Buchak and others, 2018). Collectively, these factors, according to recent evidence,
are lively to have placed downward pressure on the profitability of FIs (IMF, 2022; Bejar and others, 2022).

Within this landscape, an ongoing debate revolves around whether new FinTech firms act as complements or
substitutes to traditional FIs. One side of the debate argues that complementarity dominates by noting that
FinTechs target underserved and/or less creditworthy borrowers, a strategy known as bottom fishing
(Beaumont, Tang and Vansteenberghe, 2022; Jagtiani and Lambie-Hanson, 2021; de Roure, Pelizzon and
Thakor, 2021; Jagtiani and Lemieux, 2018). Tang (2019) examines the US consumer credit market and
demonstrates that FinTech platforms can complement banks by offering smaller loans due to their lower fixed
costs of loan origination. Incumbents can also enhance their efficiency and product offerings through
partnerships, acquisitions, or the development of their own financial technologies (Thakor, 2020; Navaretti and
others, 2018). On the other side of the debate, evidence suggests that FinTechs can exert a substitution
effect—including via greater competition—reducing the market share of incumbents, particularly when facing
regulatory shocks such as higher capital requirements (Buchak and others, 2018). More recently, Gopal and
Schnabl (2022) provide evidence of the substitution effect: in response to tighter regulatory requirements
following the 2008 financial crisis, the void created by reduced bank lending to small and medium-sized
enterprises (SMEs) was filled by lending by Fintech firms. Additionally, there is evidence indicating that FinTech
competition places downward pressure on the profitability of FIs. In the context of the US home mortgage
market, the IMF (2022) demonstrates that FinTechs directly compete with banks, significantly reducing banks'
interest income from mortgages. Bejar and others (2022), studying a limited sample of banks in Latin America,
reveal that banks in countries with a higher FinTech presence experience a greater reduction in interest
income.

Despite the significance of the ongoing debate, there has been a limited number of empirical studies exploring
the impact of FinTech presence on the profitability of incumbent financial institutions. Most of the existing
research has focused on specific countries, such as China and the United States, and examined a small
sample of banks operating in niche segments like consumer lending, SME lending, and the residential
mortgage market (IMF, 2022; Lv, Du and Liu, 2022; Lee and others, 2021; Wang, Xiuping and Zhang, 2021;
Phan and others, 2020). As a result, the empirical literature in this area remains relatively sparse.

This paper fills this gap in the literature by investigating the impact of FinTech presence on the performance of
incumbent FIs. Our study focuses on testing two competing hypotheses: whether the presence of FinTech
improves the profitability of FIs (complementarity effects) or has a negative effect on profitability (substitution
effects). Moreover, we aim to understand the underlying mechanisms driving this impact by examining key
indicators such as Net Interest Margin, Non-Interest Income (fees, commissions), and Cost-to-Income ratios.

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To achieve this, we utilize a comprehensive cross-country database that encompasses 10,167 FIs and data on
digital finance activities such as digital lending and digital capital raising activities across 57 countries. By
leveraging this extensive dataset, we can provide robust insights into the relationship between FinTech and
profitability. Additionally, we explore the influence of different FinTech business models on various types of
banks. Furthermore, our analysis reveals that the relationship between FinTech and the profitability of
incumbent FIs varies depending on country-specific conditions such as the level of financial development and
the strength of regulatory framework. By examining these dimensions, our study sheds light on the nuanced
dynamics between FinTech and incumbent FIs, providing valuable insights into the diverse effects across
markets and bank types.

The main finding of our study is an adverse impact of greater Fintech presence on incumbent FIs’ performance.
Specifically, the negative impact on FI profitability—which is primarily driven by reduced interest income and
increased costs—supports the substitution hypothesis: overall, FinTech firms directly compete with incumbent
FIs. Despite efforts by incumbents to diversify their revenue streams, these measures have not been sufficient
to counterbalance the losses incurred from the pressures of FinTech competition. Furthermore, our analysis
reveals that different FinTech models, such as Peer-to-Peer (P2P) lending and Balance Sheet lending, have
varying effects on financial institutions. Cooperative banks tend to experience greater profit deterioration from
both models, while (larger, more complex) commercial banks benefit from partnering with P2P platforms as
suggested by the positive impact on their non-interest income flows. Moreover, we find that the impact of
FinTech presence on incumbents varies depending on the characteristics of the countries they operate in.
Countries with more competitive, profitable, and developed financial systems are more susceptible to the
negative effects of FinTech competition. However, and importantly, in countries with robust regulatory
standards, incumbents benefit from increased FinTech penetration. This finding suggests that well-designed
regulations can foster a level playing field, enabling new FinTech firms to thrive while simultaneously protecting
incumbent FIs from potentially uneven competitive practices.

The remainder of the article proceeds as follows. Section II presents the conceptual framework. Section III
presents the econometric approach. Section IV describes the sample and data sources. Section V discusses
the main findings. Section VI describes the robustness checks and section VII provides the conclusions and
policy implications.

II. Conceptual Framework

Our conceptual framework builds upon the empirical literature that explores competition within the financial
system and its implications for bank performance. Numerous studies have examined the relationship between
market concentration and profitability, providing valuable insights into this area. For instance, Mirzaei, Moore,
and Liu (2013) conducted a study analyzing the impact of market structure, measured through firm-level market
share or the 5-firm concentration ratio at the market level, on bank profitability in both emerging and advanced
economies. They assessed profitability indicators such as return on assets and return on equity, finding that
higher market power corresponds to increased bank profitability in advanced economies. In the European
banking sector, Maudos and de Guevara (2004) demonstrated that reduced market power and concentration
lead to declining margins. Their research highlighted the importance of market structure in influencing bank
profitability. Moreover, Demirgüç-Kunt and Huizinga (1999) conducted an earlier study investigating the impact
of various factors, including bank and macroeconomic conditions, regulatory frameworks, and institutional
indicators, on interest margins and bank profitability. Their findings shed light on the multifaceted influences

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that can shape bank performance. Additionally, there are studies that explore the effects of regulations and
specific structural factors on bank performance, such as those by Barth, Caprio, and Levine (2004) and
Demirgüç-Kunt, Laeven, and Levine (2004). These works contribute to our understanding of how regulatory
environments and specific structural characteristics can impact the performance of banks.

We build upon this existing body of research by investigating the impact of the entry of FinTech firms on the
competitive dynamics within global financial systems. To measure competition, we utilize FinTech transactions
as a proxy, which encompasses digital finance activities like digital lending and digital capital raising that have
emerged outside of incumbent financial institutions (CCAF, 2021). In our analysis, we not only consider the
effects on bank profits but also examine additional components guided by a simple conceptual framework, as
illustrated in Figure 2. This framework enables us to present two competing hypotheses: Complementarity and
Substitution effects.

Figure 2. Conceptual Framework: How does FinTech affect bank performance? Transmission channels

Source: Authors calculations.

The Complementarity Hypothesis: FinTech presence enhances incumbent’s

performance

Under the complementarity hypothesis, incumbents strategically collaborate with FinTechs or develop in-house
FinTech solutions to expand their customer base in previously untapped segments, outside of traditional or
established channels. This partnership enables FIs to attract new customers, resulting in an expanded lending
portfolio and increased interest income. Additionally, FIs can bolster their deposit accumulation, leading to
lower funding costs. Partnerships can take the form of mergers and acquisitions, as well as incumbents
outsourcing specific parts of the transaction process, such as customer onboarding, verification, and credit

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scoring, while the originating bank handles the loan. A study conducted in the US in 2022 revealed that nearly
two-thirds of banks and credit unions had entered into at least one FinTech partnership in the past three years,
with 35 percent of them making investments in FinTech (Synctera, 2022). Other partnership models could
involve incumbents providing funding to FinTech platforms in exchange for a fee, with the platform facilitating
all transaction elements, including loan origination and payment servicing. Consequently, incumbents can
generate additional non-interest income. As reported by CCAF (2021), banks and non-bank financial
institutions collaborate with FinTechs to fund FinTech platforms, supporting investment strategies or portfolio
diversification for themselves or their clients.

Incumbents have also been making substantial investments in information technology to meet customer
expectations and adapt to the growing presence of FinTech firms in the market (U.S. Department of the
Treasury, 2022; Modi and others, 2022). This strategic approach enables incumbents to reduce operating costs
and enhance overall efficiency. Over the past five years, IT spending by banks in North America has steadily
risen, reaching $115 billion, with a focus on new investments rather than maintenance (U.S. Department of the
Treasury, 2022). The study also revealed that digital banking capabilities are considered the top priority,
followed closely by security (U.S. Department of the Treasury, 2022).

In summary, according to the complementarity hypothesis, we expect FinTech platforms to complement the
incumbents and improve their performance by increasing their profitability through higher interest income and
non-interest income, and lower costs.

The Substitution Hypothesis: FinTech presence reduces incumbent’s

performance

According to the substitution hypothesis, incumbent financial institutions are likely to experience significant
competitive pressures arising from the emergence of FinTech firms, which can have a detrimental effect on
their performance. The disruptive business models and innovative technologies introduced by FinTech firms
challenge the traditional institutions in the financial industry. Notably, FinTech firms excel in efficient screening
of potential borrowers and processing loan applications at a faster pace compared to incumbents (Hau and
others, 2021; Berg and others, 2020; Fuster and others, 2019). Moreover, empirical evidence suggests that
during periods of regulatory shocks, such as the implementation of higher capital requirements, traditional
banks may reduce their lending activities. This reduction in lending can potentially drive customers towards
FinTech firms, seeking alternative sources of financing (Gopal and Schnabl, 2021; Tang, 2019; Buchak and
others, 2018). It is important to note that FinTech firms, not being subjected to the same level of regulatory
scrutiny as incumbent FIs, have more flexibility in terms of the products they can offer and the target customers
they can serve. These factors collectively contribute to the competitive advantage enjoyed by FinTech firms, as
they can leverage their agility and technological capabilities to provide innovative financial products and
services to a broader customer base. This presents a significant challenge for incumbent financial institutions
that must navigate through the evolving landscape of the financial industry and find ways to effectively compete
with the disruptive forces of FinTech.

Considering the competitive advantages enjoyed by FinTech firms, incumbent financial institutions may face
challenges in retaining their existing customers and expanding into new market segments. This could lead to a
contraction in their loan portfolio, reducing its diversification and resulting in lower interest income.
Furthermore, a decline in deposit collection may necessitate a greater reliance on debt for funding, leading to

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increased interest expenses. In addition, the reduced deposit and loan activity would result in a decrease in fee
income, including account maintenance fees, transaction fees, credit card fees, and loan processing fees.
Consequently, the non-interest income generated by incumbents may decline. Another factor to consider is the
potential slow adoption of new digital technologies by incumbent institutions. They may still rely on obsolete
legacy systems and maintain large branch networks to meet service standards that new competitors can
provide more efficiently (OECD, 2020). Therefore, their operational costs may remain high, and their overall
efficiency may be compromised. Taken together, these factors can lead to a decrease in the profitability of
incumbent institutions.

In summary, according to the substitution hypothesis, we expect FinTech platforms to substitute the
incumbents and negatively affect their performance by decreasing their profitability through lower interest
income and non-interest income and higher costs.

The Differential Effect of FinTech Business Models on Incumbent FIs’

Performance

We will now examine how the relationship between FinTech firms, and the profitability of incumbent financial
institutions varies depending on the specific FinTech business models and the types of financial institutions
involved. Among the various FinTech business models, P2P lending and Balance Sheet lending have gained
significant traction. P2P lending stands out as the largest business model when considering China in our
analysis, as shown in Figure 3. However, when excluding China, we observe that the growth of FinTech
transactions is driven by both P2P lending and Balance Sheet lending, as depicted in Figure 4.

Figure 3. FinTech finance volumes by model Figure 4. FinTech finance volumes by

(including China, in US$ billions) model (without China, in US$ billions)

Source: Authors calculations using CCAF (2021) Database.

P2P Lending

In general, P2P lending platform offers a matching service between borrowers and investors. The platform
verifies the borrower's information, assigns a credit rating, and refers the completed loan application package
to a partner bank that provides the loan to the borrower. This means that the risk of financial loss in case of
loan default lies with the partnering bank rather than the platform itself (CCAF, 2021; FSB, 2017; FDIC, 2015).

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P2P lending platforms typically generate income by charging fees to both borrowers and investors.2 To mitigate
risk, the platform encourages investors to diversify their investments across multiple loans. These investors can
be individuals or institutions such as banks, trusts, brokerage firms, investment dealers, insurance companies,
and other non-financial institutions. Assuming a pure P2P lending model, we anticipate stronger
complementarity effects, which would enhance the performance of incumbent financial institutions. This would
be reflected in increased profits resulting from higher interest income and reduced costs.

Balance Sheet Lending

The Balance Sheet lending platform is the closest model to a traditional non-bank credit intermediary, which
can provide loans but is not legally permitted to take deposits (CCAF, 2021). This type of platform facilitates the
entire loan transaction process, including collecting borrower applications, assigning credit ratings, advertising
loan requests, connecting borrowers with interested investors, originating the loans, and servicing loan
payments. As a result, the platform operator bears the risk of financial loss if the loans are not repaid (CCAF,
2021; FSB, 2017; FDIC, 2015).3 Balance Sheet lending platforms secure financing through debt or equity and
include the loans they provide on their own balance sheets (Baba and others, 2020). In the case of Balance
Sheet lending, we anticipate stronger substitution effects, which can lead to reduced profits for incumbent
financial institutions. This would be reflected in lower interest income and higher costs for incumbents.

There are also FinTech platforms that employ a combination of different business models, rather than
exclusively relying on either the P2P or Balance Sheet model. Some platforms initially operate as pure P2P
lenders, providing a matching service between borrowers and investors. However, as they grow and establish
trust, they may transition to a Balance Sheet model. This means that in addition to referring loan applications to
partnering banks, they also originate loans themselves by obtaining funding from institutional investors for a fee
(Baba and others, 2020). This can enable incumbent institutions to generate additional non-interest income.

It is worth noting that there are a few platforms, which fall outside the scope of our study, which have taken a
further step and obtained a banking license. This allows them to directly access lower-cost deposit funding,
eliminating the need for partner banks in their operations.4

2
An example of such model is Mintos, one of the biggest P2P lending platforms in Europe with €8.7 billion invested in loans and
€394 million of loans sold on the Secondary Market since its creation in 2015 (Mintos, 2023). In addition to individual investors,
Mintos partners with 61 lending companies from 33 companies to issue loans. Minto’s main source of income is the commission
they take from the lending companies when they fund their originated loans through Mintos. Investing activities are free, apart from
the fees and charges for additional services including forex conversions and selling in the secondary market.
3
An example of such model is Credibly, a leading FinTech platform in lending to SMEs. Since its inception in 2010, Credibly has
provided over $2 billion in funding to small and medium-sized businesses across the United States (Credibly, 2023). Credibly works
with borrowers throughout the entire underwriting, funding, and servicing process and relies on funding from venture capital firms
and other institutional investors.
4
Such an example is Lending Club, one of the first P2P lending platforms in the U.S., helping more than 4 million members receive
over $70 billion in personal loans (Lending Club, 2023). In 2021, Lending Club acquired Radius Bank and became the first public
U.S. neobank and subsequently closed their P2P side of the business. Their drive to become a bank came from the high funding
costs of working with institutional investors. Similarly, Zopa, a British-based FinTech company began as the world’s first P2P lending
platform in 2005. In 2020, Zopa gained a full banking license offering deposit and savings accounts in addition to their lending arm
and by end of 2021 they closed their P2P lending side of the business (Zopa, 2023).

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Types of FIs

We also aim to examine whether the impact of the two prominent FinTech business models, P2P lending and
Balance Sheet lending, varies across different types of banks, namely cooperative banks, and commercial
banks, which account for 70 percent and 14 percent of our sample, respectively. Our expectations are that
cooperative banks may be more susceptible to FinTech competition due to their smaller size, limited product
range, and local customer focus (McKillop and others, 2020; Coelho and others, 2019; Al-Muharrami and
Hardy, 2013). They face challenges in achieving economies of scale and scope, have restrictions on expanding
geographically, and may struggle to meet the demands of a mobile population. Additionally, some cooperative
banks may find it difficult to afford the necessary IT investments to meet customer expectations, particularly
among younger generations who are more inclined to use digital banking services and may not have strong
attachments to community-oriented institutions (Coelho and others, 2019).

In contrast, larger commercial banks, with their sophisticated product offerings, broader geographic reach, and
existing investments in digital technology, are better positioned to withstand FinTech competition and are
unlikely to experience significant negative effects on their performance.

III. Econometric Approach

Our empirical research is motivated by recent research estimating determinants of bank performance (Elekdag,
Malik and Mitra, 2020; Djalilov and Piesse, 2016; Dietrich and Wanzenried, 2011; García-Herrero, Gavilá and
Santabárbara, 2009; Athanasoglou, Brissimis and Delis, 2008). These scholars have studied the effect of bank-
specific, as well as industry specific and macroeconomic determinants on measures of bank performance.

Guided by our conceptual framework and these empirical studies we initially propose a parsimonious baseline
specification:

𝑃𝐸𝑅𝑏,𝑐, 𝑡 = 𝛼 + 𝛽1 𝐹𝑖𝑛𝑇𝑒𝑐ℎ𝑐,𝑡 + 𝛾𝑋𝑏,𝑐,𝑡 + 𝛿𝑊𝑐,𝑡 + 𝑂𝑡ℎ𝑒𝑟𝑏,𝑐,𝑡 (1)

Where 𝑃𝐸𝑅𝑏,𝑐, 𝑡 denotes the profitability ratios (ROE and ROA) and relevant income (NIM and NONIC) and
cost (CTI) components, winsorized at the 1 percent level to mitigate the impact of outliers, for bank b, in country
c, in year t; 𝐹𝑖𝑛𝑇𝑒𝑐ℎ𝑐,𝑡 the log measure5 of country-level FinTech transactions in year t; the vectors 𝑋𝑏,𝑐,𝑡 and
𝑊𝑐,𝑡 encompass the bank specific, cyclical and structural determinants; 𝑂𝑡ℎ𝑒𝑟𝑐,𝑡 includes bank fixed effects and
a residual term assumed to be not cross-sectionally correlated. The vector 𝑋𝑏,𝑐,𝑡 controls for size (log (Total
Assets)) and capital (Equity to Total Assets ratio). The vector 𝑊𝑐,𝑡 includes cyclical and structural determinants
such as GDP growth, inflation, policy rate and 5-bank asset concentration. For more on the definitions of the
variables and their descriptive statistics please refer to Annex I and II.

Our plausible expectations for our baseline specification which were discussed in the conceptual framework
would be as follows, the case of profitability (using ROE as an example):

𝜕𝑅𝑂𝐸
H1: > 0 → Complements: FinTech presence enhances incumbent’s profitability.
𝜕𝐹𝑖𝑛𝑡𝑒𝑐ℎ

5
For brevity, we use the label ‘‘FinTech’’ in referring to the natural logarithm of the FinTech in the remainder of the paper.

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 𝜕𝑅𝑂𝐸
H2: < 0 → Substitutes: FinTech presence worsens incumbent’s profitability
𝜕𝐹𝑖𝑛𝑡𝑒𝑐ℎ

Next, we consider two FinTech models such as P2P lending and Balance Sheet lending in our analysis.
Therefore, the specification would be modified as follows:

𝑃𝐸𝑅𝑏,𝑐, 𝑡 = 𝛼 + 𝛽1 𝐹𝑖𝑛𝑇𝑒𝑐ℎ𝐵𝑢𝑠𝑖𝑛𝑒𝑠𝑠𝑀𝑜𝑑𝑒𝑙𝑐,𝑡 + 𝛾𝑋𝑏,𝑐,𝑡 + 𝛿𝑊𝑐,𝑡 + 𝑂𝑡ℎ𝑒𝑟𝑏,𝑐,𝑡 (2)

Our expectations for the modified specification:

𝜕𝑅𝑂𝐸
H1: > 0 → Complements: P2P lending enhances incumbent’s profitability.
𝜕𝑃2𝑃

𝜕𝑅𝑂𝐸
H2: < 0 → Substitutes: Balance Sheet lending reduces incumbent’s profitability
𝜕𝐵𝑆

Our analysis also considers the role of country and bank-specific characteristics. In this case, the specification
would be modified as follows:

𝑃𝐸𝑅𝑏,𝑐, 𝑡 = 𝛼 + 𝛽1 𝐹𝑖𝑛𝑇𝑒𝑐ℎ𝑐,𝑡 + 𝛽2 𝜔𝑏,𝑐, 𝑡 + 𝛽3 𝐹𝑖𝑛𝑇𝑒𝑐ℎ𝑐,𝑡 ∗ 𝜔𝑏,𝑐, 𝑡 + 𝛾𝑋𝑏,𝑐,𝑡 + 𝛿𝑊𝑐,𝑡 + 𝑂𝑡ℎ𝑒𝑟𝑏,𝑐,𝑡 (3)

We measure how each of these factors influence the financial institutions performance ratios:

𝜕𝑃𝐸𝑅
= 𝛽1 + 𝛽3 ∗ 𝜔𝑏,𝑐, 𝑡
𝜕𝐹𝑖𝑛𝑇𝑒𝑐ℎ

Where 𝜔𝑏,𝑐, 𝑡 denotes the different Country-specific characteristics such as: Stock Market Turnover and Credit
Depth (Private Credit to GDP); Financial System and Industry features such as: Commercial Bank Profitability
(Return on Equity) and Bank concentration; Institutional characteristics: Regulatory Quality and Government
Effectiveness. For completeness we also look at Bank-specific characteristics such as: Solvency (Z-Score);
Non-Performing Loans (NPLs) and Total Capital Ratio. These moderator variables are constructed as dummy
variables that enable the differentiation of observations based on whether they fall below or above their median
value. For instance, in the case of low bank concentration, a value of 1 indicates values below the median, and
0 represents values above the median. Similarly, concerning high stock market turnover, a value of 1 indicates
values above the median, and 0 signifies values below the median. By splitting the observations into two
groups based on their median, the model can account for potential nonlinearities and differing relationships that
exist between FinTech and the performance of FIs. For more on the definitions of the variables and their
descriptive statistics please refer to Table 1 below and Annex I and II.

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Table 1. Country and Bank-specific characteristics

Variable Definition
Country
Stock Market Turnover Total value of shares traded divided by the average
market capitalization.
Credit Depth The financial resources provided to the private sector by
domestic money banks as a share of GDP.
Financial System
Return on Equity (ROE) Aggregated commercial bank’s after-tax net income to
yearly averaged equity.
Industry
Bank concentration Assets of five largest banks to total commercial banking
assets.
Institutions
Regulatory quality How well governments can develop and implement
sound policies and regulations that support private
sector growth.
Government effectiveness Quality of public services, quality of the civil service and
the degree of its independence from political pressures,
quality of policy formulation and implementation.
Bank-specific
Risk-taking Measured by the Z-Score which computes the distance
from insolvency: (ROA+E/A)/s(ROA), where s(ROA) is
the standard deviation of ROA.
Asset Quality Non-Performing Loans to Gross Loans
Capital Total Capital Ratio

Source: International Monetary Fund (IMF) WEO, World Bank Governance Indicators, World Development Indicators, Haver, the
Global Financial Development Database and Authors calculations.

IV. Sample and Data Sources

To examine the relationship between FinTech competition and profitability of financial institutions, we combine
three different datasets for our analysis. First, data on FinTech transactions were collected from the Global
Alternative Finance data depository hosted by the Cambridge Center for Alternative Finance (CCAF) for a
sample of 57 countries of yearly data over 2012-2020. Our measure of FinTech transactions include country-
level digital finance activities such as digital lending and digital capital raising activities that have emerged
outside of the incumbent banking systems and traditional capital markets and occur online (CCAF, 2021).
Digital lending commonly associated with the P2P lending and Balance Sheet lending activities have by far
dominated the alternative finance market. They refer to non-deposit taking platforms that facilitate online credit
to individuals, businesses or other entities from individual lenders or institutional investors (CCAF, 2021). Other
digital capital raising activities remain small and relate to activities where individuals or institutions invest in
unlisted shares or securities issued by a business, typically a startup or provide funding to a project, an

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individual or a business without any expectations for a monetary return. For more on these models and stylized
facts, please refer to Annex IV and V.

Second, we collect balance sheet and income statement data for 10,167 financial institutions from the Bureau
van Dijk Orbis database. This database provides information on banks and non-banks globally, based on
publicly available data sources. To capture the domestic effects, we primarily use unconsolidated statements
(95 percent of our observations) as they provide a more detailed view of financial activities and performance of
individual banks within their respective markets. Unconsolidated statements are preferred as they exclude
other activities and sources of income from parent companies or subsidiaries from the analysis (Albertazzi and
Gambacorta, 2009; García-Herrero, Gavilá and Santabárbara, 2009; Valverde and Fernandez, 2007).
However, in some cases, certain banks only have consolidated statements, while others have only
unconsolidated statements. To avoid information loss, we use the consolidated statement when an
unconsolidated statement is unavailable (Micco, Panizza, and Yañez, 2007). Our sample of financial
institutions consists of two groups: banks and non-banks, representing 90.5 percent and 9.5 percent of the
observations, respectively. Banks include commercial banks, cooperative banks, Islamic banks, micro-finance
institutions, and savings banks, while non-banks include finance companies, investment and trust corporations,
investment banks, real estate and mortgage banks, specialized governmental credit institutions, and other non-
banking credit institutions. For further details on the stylized facts, please refer to Annex II - Table 7.

Third, we gather country-level macroeconomic data and various structural indicators from publicly available
sources, including the International Monetary Fund (IMF) WEO, World Bank Governance Indicators, World
Development Indicators, Haver, and the Global Financial Development Database. These data encompass
factors such as GDP growth, policy rate, inflation, bank concentration, financial system Return on Equity
(ROE), stock market turnover, credit-to-GDP ratio, regulatory quality, government effectiveness, and internet
penetration. Definitions of the variables and their descriptive statistics are provided in Annex I and II for further
reference.

V. Results
Baseline estimation results

We now turn our attention to the main results, which are presented in Table 2. The table presents the impact of
our primary FinTech variable on profitability measures (ROE and ROA) and the underlying transmission
channels: Net Interest Margin (NIM), Non-Interest Income (NONIC), and Cost-to-Income ratio (CTI). The results
indicate a significant and negative effect of FinTech on the profitability measures of incumbent financial
institutions (ROE and ROA). The estimated coefficients suggest that a 1 percentage point increase in FinTech
transaction volumes leads to a reduction of 0.09 percentage points in incumbent FI's ROE and 0.02 percentage
points in ROA, respectively. These effects are meaningful considering that the median values of ROE and ROA
in our sample are 4.2 percent and 0.5 percent, respectively. Our findings provide support for the substitution
hypothesis, which suggests that increased competition from the growing presence of FinTech adversely affects
the profitability of incumbent financial institutions. Our results are consistent with the findings of other studies
that examine the effect of FinTech competition on the profitability ratios of incumbent banks. Phan and others
(2020) find that for every new FinTech firm introduced into the market of Indonesia, ROA and ROE decline by

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9.32% and 2.07% respectively. Katsiampa and others (2022) also report that the profitability of traditional
Chinese banks is diminished due to the entry of fintech firms into the credit market.

An analysis of the transmission channels reveals a negative and statistically significant impact on NIM. The
estimated coefficient suggests that a 1 percentage point increase in FinTech transaction volumes leads to a
decrease in incumbent's NIM by 0.03 percentage points. This effect is noteworthy, considering that the average
growth rate of FinTech volumes during the period 2012-2020 (excluding China) is 70 percent, indicating a
rapidly growing FinTech competition that exerts significant pressure on the income of financial institutions. Our
findings align with recent empirical research examining the impact of the increasing presence of FinTech on
interest income. Bakker and others (2023) find that FinTech competition is associated with a reduction in net
interest margin of banks in EMDEs and Latin America and the Caribbean by 0.2 to 2.7 percentage. The IMF
(2022) demonstrates that a higher market share of FinTechs is associated with a decline in interest income.
Bejar and others (2022) also show that incumbent banks in countries with a significant FinTech presence have
experienced larger reductions in NIMs.

Furthermore, FinTech appears to have an adverse effect on the CTI. The coefficient suggests that a 1
percentage point increase in FinTech transaction volumes leads to a 0.14 percentage point increase in
incumbent's CTI. This could be attributed to IT investments necessitated by the pressures from FinTechs,
which may be exacerbated by the presence of outdated legacy technology.

Table 2. Effect of FinTech on Bank Performance Measures

(1) (2) (3) (4) (5)
ROE ROA NIM NONIC CTI
FinTech -0.0903*** -0.0246*** -0.0277*** 0.0111*** 0.136***
(0.0113) (0.00233) (0.00340) (0.00338) (0.0292)
Size 3.212*** 0.730*** -0.0992 -0.515*** -9.447***
(0.418) (0.0883) (0.128) (0.151) (1.220)
Equity-Asset ratio 0.110*** 0.0434*** 0.0380*** 0.0169** -0.0994*
(0.0217) (0.00539) (0.00955) (0.00666) (0.0521)
GDP growth 0.229*** 0.0360*** 0.0389*** 0.0107** -0.412***
(0.0155) (0.00330) (0.00553) (0.00468) (0.0371)
Inflation -0.186*** -0.0569*** -0.0486** 0.0260 -0.140
(0.0534) (0.0117) (0.0210) (0.0188) (0.100)
Policy rate 0.242*** 0.102*** 0.193*** 0.00732 -0.550***
(0.0426) (0.0107) (0.0220) (0.0151) (0.0756)
Concentration -0.00655 -0.00309* 0.00413 0.00966*** 0.0768***
(0.00825) (0.00183) (0.00344) (0.00258) (0.0188)
N 79523 79701 79438 79666 79384
rho 0.680 0.776 0.910 0.912 0.757
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

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In contrast, our analysis reveals that FinTech has a positive effect on NONIC. The estimated coefficient
suggests that a 1 percentage point increase in FinTech transaction volumes leads to a 0.01 percentage point
increase in incumbent's NONIC. This finding indicates that the intense competition posed by FinTech firms has
compelled incumbent financial institutions to explore new revenue streams, with a particular focus on
generating income from fees and commissions. However, it is important to note that the impact appears to be
relatively small compared to the median value of NONIC in our sample, which is 1.99 percent. This suggests
that while incumbent FIs have made efforts to diversify their income sources, the positive effect of FinTech on
non-interest income has not been sufficient to fully offset the profitability losses incurred due to the pressures of
FinTech competition. Additional strategies and measures may be necessary for traditional financial institutions
to effectively navigate the evolving landscape and mitigate the overall impact on their profitability.

In summary, our findings suggest that the lower profitability of incumbent FIs can be attributed to two main
factors: lower interest income and higher costs. The increasing presence of FinTech firms has led to a decline
in interest income for incumbents, as they face intensified competition in the lending market. Moreover, the
costs associated with adapting to new technologies and meeting customer expectations have increased, further
impacting their profitability. While incumbent financial institutions have made efforts to diversify their income
sources, our analysis indicates that these measures have not fully offset the losses incurred from FinTech
competition. The competition from FinTech firms has proven to be significant, and traditional FIs continue to
face challenges in maintaining their profitability in this changing landscape.

Effect of FinTech Business Models on Incumbent’s Performance

We now examine the impact of FinTech business models6 on the different types of financial institutions. The
results are summarized in Table 3 (for detailed findings, refer to Appendix 5, Table 1- 4). Our estimations
indicate that cooperative banks are particularly susceptible to profit deterioration caused by both P2P and
Balance Sheet lending business models. Specifically, our coefficients suggest that a 1 percentage point
increase in P2P lending transactions leads to a 0.3 percentage point decrease in incumbent cooperative banks'
ROE. Similarly, a 1 percentage point increase in Balance Sheet lending transactions results in a 0.2
percentage point decrease in ROE. These impacts are significant, considering that the median ROE for
cooperative banks in our sample is 3.8 percent.

Our findings also reveal that the lower profits of cooperative banks can be attributed to reduced NIM and higher
CTI. It is possible that FinTech platforms, leveraging new technologies, have achieved economies of scale and
expanded their reach to wider geographical areas compared to cooperative banks (Coelho and others, 2019).
Additionally, some cooperative Banks may face challenges in affording the necessary IT investments to meet
customer expectations, particularly among the younger generation, who are more inclined to use digital
banking services and may have weaker attachments to local community-oriented institutions (Coelho and
others, 2019; Al-Muharrami and Hardy, 2013). These factors can limit lending opportunities and undermine the
overall profitability of cooperative banks, as supported by our results.

6
Note that we have also conducted separate estimations to gauge the impact of other FinTech activities, specifically digital capital
raising activities, on various types of financial institutions. However, the outcomes of these estimations have not been included in
this presentation due to the relatively modest scale of these transactions when contrasted with the P2P and Balance Sheet lending
models (see Figure 3 & 4). Likewise, our analysis has considered BigTech as a separate entity in our estimations. However, the
findings pertaining to BigTech have not been showcased owing to its more limited global coverage compared to FinTech, and
because the data does not include the breakdown of distinct business models.

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Furthermore, FinTech platforms may be targeting the same untapped customer segments that cooperative
banks aim to serve. Empirical evidence suggests that FinTech lenders tend to penetrate underserved areas.
Studies have shown that FinTech borrowers have fewer tangible assets (Beaumont, Tang, and
Vansteenberghe, 2022) and that FinTech market share increases in areas with higher loan denial rates and
lower consumer credit scores (Jagtiani, Lambie-Hanson, and Lambie-Hanson, 2021).
Overall, our findings highlight the challenges faced by cooperative banks in the face of FinTech competition. To
address these challenges, cooperative banks may need to consider strategies to enhance their digital
capabilities, improve operational efficiency, and develop innovative products and services that cater to the
evolving needs of their target customers.

In contrast to cooperative banks, our analysis indicates that commercial banks are in a better position as the
impact of FinTech on profitability measures appears to be insignificant. This can be attributed to several
factors. Firstly, commercial banks tend to have a larger size compared to cooperative banks in our sample,
which may provide them with certain advantages and resources to withstand the challenges posed by FinTech
competition. Secondly, commercial banks typically have a wider geographical reach and offer more
sophisticated products, which may help them retain a competitive edge.

Furthermore, our results indicate that the presence of P2P lending has a positive effect on the NONIC of
commercial banks. This suggests that commercial banks may benefit from partnering with P2P lending
platforms, potentially expanding their revenue streams through collaborative efforts.

However, it is worth noting that commercial banks may face challenges when it comes to the Balance Sheet
lending model, as it appears to have a negative impact on their NIM. Although the impact may not be as severe
as in the case of cooperative banks, it still poses a potential challenge to the profitability of commercial banks. It
is important for commercial banks to closely monitor and adapt to the changing landscape of FinTech and
Balance Sheet lending models to mitigate any adverse effects on their NIM.

Overall, the findings suggest that while commercial banks may be better positioned compared to cooperative
banks in dealing with FinTech competition, they still need to remain vigilant and proactive in exploring
opportunities for collaboration and innovation to maintain their competitive advantage in the evolving financial
landscape.

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 Table 3. Summary: Effect of FinTech Models on Bank Performance Measures
ROE ROA NIM NONIC CTI

ALL FinTech -0.0903*** -0.0246*** -0.0277*** 0.0111*** 0.136***

P2P lending -0.333*** -0.128*** -0.111*** 0.0192 0.676***

Cooperative
Banks
Balance
-0.192*** -0.0910*** -0.142*** 0.0177* -0.0944
Sheet lending

P2P lending -0.0489 -0.0153 0.00653 0.0611*** 0.286**

Commercial
Banks
Balance
-0.0749 -0.0120 -0.0612*** 0.0225 0.449***
Sheet lending
Source: Authors calculations
Note: *, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

Effect of FinTech based on selected country and bank-specific characteristics

We now assess how the different country and bank-specific characteristics can affect the relationship between
FinTech competition and incumbent FIs’ profitability. The results, presented in Table 4 (detailed information can
be found in Appendix 5, Tables 5-13), indicate that profitability of incumbents is negatively affected in markets
with lower bank concentration, higher stock market turnover, higher credit depth, and higher commercial bank
profitability at the country level. Lower bank concentration suggests fewer barriers to entry (Beck, Demirgüç-
Kunt and Levine, 2006) for new FinTech firms. Likewise, higher stock market turnover and credit depth indicate
more competitive and developed financial systems (Beck, De Jonghe and Schepens, 2013; Čihák and others,
2013, Demirgüç-Kunt and Levine, 1996) which implies fewer barriers to entry, more sophisticated investors,
and access to highly skilled talent. These factors are crucial for the success of FinTech firms, while posing a
threat to the profits of incumbent institutions. Additionally, a profitable banking sector can suggest greater
market power (Lloyd-Williams, Molyneux, and Thornton 1994; Berger and Hannan 1989; Gilbert 1984) while at
the same time a greater demand for financial services overall, creating opportunities for FinTech companies to
enter the market and expand their customer base, thereby threatening the profits of incumbents. Overall, these
findings suggest that FinTech firms are attracted to more competitive, profitable, and developed financial
systems.

At the same time, financial institutions with relatively stronger regulatory standards seem to benefit from
increased penetration of FinTech. Our findings demonstrate that the profitability of incumbents in countries with
high regulatory quality and government effectiveness is positively impacted by FinTech competition. This
implies that well-designed regulations can establish a level playing field (Kaufmann, Kraay and Mastruzzi,
2010), enabling new FinTech companies to thrive while protecting incumbents from uneven competition
practices.

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At the institutional level, incumbents with a lower risk profile, including lower non-performing loans (NPLs), a
lower probability of insolvency, and higher capital, are more susceptible to the adverse profitability implications
associated with the presence of FinTech. These findings support our expectations that incumbent institutions
with these characteristics would be more risk-averse and less inclined to lend (Corbae and D’Erasmo, 2014;
Dietrich and Wanzenreid, 2011; Goddard, Molyneux and Wilson, 2004). FinTech firms can capitalize on this
situation by serving as substitutes for traditional bank lending (Gopal and Schnabl, 2021; Tang, 2019; Buchak
and others, 2018).

Table 4. Summary: Effect of FinTech based on selected country and bank-specific characteristics

ROE ROA
FinTech*Low Concentration -0.0704*** -0.0021
Net Effect -0.1041 -0.0258
FinTech*High Stock Market Turnover -0.0418* -0.00646
Net Effect -0.1215 -0.03096
FinTech*High Credit depth -0.14*** -0.0196***
Net Effect -0.2079 -0.0428
Country
FinTech*High ROE -0.0592*** -0.0164***
Net Effect -0.1274 -0.0378
FinTech*High Regulatory quality 0.316** 0.0878*
Net Effect 0.2235 0.0629
FinTech*High Government effectiveness 1.513*** 0.144***
Net Effect 1.4175 0.1188
FinTech*Low NPL -0.157*** -0.057***
Net Effect -0.2386 -0.0784
FinTech*High Risk-taking -0.0636*** -0.035***
Bank
Net Effect -0.1634 -0.0584
FinTech*High Capital -0.119** -0.0314***
Net Effect -0.0815 -0.0212

Source: Authors calculations

Note: *, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.
In this table we report coefficients of interaction terms and the Net effect. Interaction terms are formed by multiplying the dummy
variable representing the moderator variables (i.e., low concentration; high stock market turnover etc.) with the independent variable
which in our case is the log transformed variables of FinTech. The Net Effect, also known as the Total Effect, is calculated by
summing the coefficient of the independent variable and the coefficient of the interaction term. Mathematically, Net Effect =
Coefficient of Independent Variable + Coefficient of Interaction Term.

VI. Robustness Checks

To validate the previous findings and ensure their reliability, we conducted several robustness checks which
are presented in Table 5 (detailed information can be found in Appendix 5, Tables 14-27). First, we examined
the impact of FinTech transactions relative to the overall economy and financial system. The results indicate
that when scaling the new FinTech explanatory variables to GDP and to total assets of the incumbents in our
sample, the findings remain broadly consistent with the baseline estimation. Second, we expanded our analysis
to include the larger ecosystem of alternative finance transactions, specifically incorporating the BigTech credit
transactions compiled by Cornelli and others (2022). The results presented in Table 5 demonstrate that our
combined FinBigTech explanatory variable continues to have a significant negative effect on the profitability

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measures of our incumbents, leading to lower income and lower costs, while exhibiting a positive effect on non-
interest income.

We acknowledge the potential emergence of endogeneity issues, including scenarios such as reverse
causality, omitted variable bias, and simultaneity. To illustrate, consider the case of reverse causality, wherein
the entry of FinTech into a country might be influenced by the level of competition in the local market, thus
directly impacting the observed profitability. To address these potential endogeneity concerns, we employed a
Two-Stage Least Squares (2SLS) approach, which involved using valid instrumental variables. Our instrument
set included measures such as internet penetration, along with two novel exogenous measures: 𝐹𝑖𝑛𝑇𝑒𝑐ℎ−𝑐,𝑡
which represents the sum of all FinTech transactions in our sample leaving out Country c and 𝑅𝑒𝑔𝐼𝑛𝑠𝑡𝐹𝑢𝑛𝑑−𝑐,𝑡
which represents the sum of regional Institutional Funding leaving out Country c.

By incorporating internet penetration as a control variable, we effectively accounted for variations in internet
accessibility across different countries. Our underlying assumption was that a higher proportion of the
population with internet access would likely correlate with increased FinTech transactions, and conversely.
The results from these regressions closely align with our baseline model. Moreover, the inclusion of 𝐹𝑖𝑛𝑇𝑒𝑐ℎ−𝑐,𝑡
as an instrument allowed us to isolate and thoroughly examine the impact of FinTech transactions occurring
beyond a specific country’s borders. This approach helped mitigate potential biases that might arise from
factors like mergers, acquisitions, or partnerships between FinTech entities and established institutions within
the country. Additionally, our control for institutional investor funding was imperative, considering that FinTech
platforms often rely on financial support from institutional investors. Our results from the two respective
regressions remain broadly robust relative to the baseline estimation.
To tackle the challenges posed by endogeneity and the presence of unobserved differences among banks, we
adopted a two-step Generalized Method of Moments (GMM) approach, drawing from the methodologies
outlined by Arellano and Bover (1995) as well as Blundell and Bond (1998). This method effectively addressed
potential biases originating from dissimilar corporate governance structures, latent variables, and the unique
characteristics of our dataset—comprising a limited number of time periods but a substantial number of
individual institutions. The outcomes yielded through this methodology retained their significance and
robustness in comparison to the baseline estimates. Additionally, we revisited our model with a balanced
sample, a move aimed at controlling for the influence of mergers and acquisitions. This entailed retaining
institutions that held complete information for all five performance ratios (ROE, ROA, NIM, NONIC, CTI)
throughout the 2012-2020 timeframe. The results exhibited considerable consistency and robustness when
juxtaposed with the baseline estimation.

Similarly, we explored the incorporation of lagged explanatory variables to address potential autoregressive
effects, drawing inspiration from the work of Pesaran and Shin (1999). These modifications produced outcomes
that closely aligned with the baseline estimates. To account for temporal dynamics, we introduced a dummy
variable to capture the impact of Covid-19 and introduced time fixed effects in separate estimations. These
adjustments yielded outcomes that maintained their consistency across various performance metrics.

Furthermore, given the substantial contribution of China, the U.S., and the UK to the overall FinTech transaction
volumes within our sample, we performed separate regression analyses by excluding each of these countries
individually. Remarkably, the results from these analyses continued to exhibit significance and robustness in
relation to the baseline estimates.

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 Table 5. Robustness Checks
ROE ROA NIM NONIC CTI
Baseline
FinTech -0.0903*** -0.0246*** -0.0277*** 0.0111*** 0.136***

FinTech_assets -0.321** -0.177*** -0.300*** 0.172*** 0.482

FinTech_gdp -0.144 -0.221*** -0.353*** 0.210*** 0.340
FinBigTech -0.0898*** -0.0245*** -0.0259*** 0.0110*** 0.130***

Two-Stage least squares (2SLS)

FinTech=IP -0.119*** -0.0624*** -0.0560*** 0.0376*** 0.00174

FinTech=FT -0.136*** -0.0308*** -0.0227*** 0.00622*** 0.0719***
FinTech=IF -0.550*** -0.212*** -0.194*** 0.0272 0.0561

Two-Step Generalized Methods of Moments (GMM)

FinTech -0.274*** -0.0631*** -0.0623** 0.0228* 0.190**

Balanced Panel

FinTech -0.0674*** -0.00705*** -0.0143*** 0.00106 0.114***

Lagged Explanatory Variable

FinTech (-1) -0.0471*** -0.0212*** -0.0163*** 0.00879*** -0.0425

Adding a Covid dummy (1= Year 2020; 0=Year 2012-2019)

FinTech -0.0900*** -0.0230*** -0.0242*** 0.00825*** 0.114***

Adding Time Fixed Effects and no macro controls

FinTech -0.0108 -0.0442*** -0.147*** 0.0342*** 0.592***

Excluding China, US, and UK from the sample

FinTech_exclCHN -0.0946*** -0.0254*** -0.0278*** 0.0111*** 0.138***

FinTech_exclCHNUS -0.101** -0.0562*** -0.0708*** 0.0615*** 0.649***
FinTech_exclCHNUSUK -0.0984** -0.0550*** -0.0732*** 0.0608*** 0.648***
Source: Authors calculations
Note: Standard errors in parentheses*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

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VII. Conclusions and Policy Implications
This paper aims to provide insights into the impact of emerging FinTech firms on the performance of
established financial institutions. Our findings reveal a negative influence of FinTech presence on profitability,
primarily driven by lower income and increased costs. Despite efforts by incumbents to diversify their revenue
streams, these measures have been insufficient to offset the overall decline in profits. When analyzing the
effects of different FinTech models, namely P2P lending, and Balance Sheet lending, on various types of
financial institutions, our results indicate that cooperative banks are particularly susceptible to profit
deterioration from both models, whereas (larger, more complex) commercial banks seem to be better
positioned as indicated by higher non-interest income flows. This suggests that commercial banks may benefit
more from partnering with P2P platforms.

Furthermore, we highlight the evolving relationship between FinTech presence and the profitability of
incumbent financial institutions, contingent on diverse country and institutional characteristics. At the country
level, we demonstrate that FinTech activity is attracted to more competitive, profitable, and developed financial
systems. At the same time, incumbents in countries with stronger regulatory standards reap the advantages of
increased FinTech penetration. This indicates that well-designed regulations can foster a level playing field,
enabling new FinTech firms to thrive while simultaneously protecting incumbent FIs from potentially uneven
competitive practices.

These findings underscore the need for continuous monitoring of FinTech development and its impact on all
segments of the financial system. While the entry of new FinTech platforms has brought about benefits such as
improved efficiency in financial service delivery, increased competition, and enhanced access to finance, it can
also pose challenges to incumbent institutions by eroding their market share and limiting profit margins.
Consequently, banks may face difficulties in building capital buffers necessary to absorb losses and maintain
solvency. Moreover, incumbents may engage in riskier lending and investment activities to preserve their
market share and boost profits. Striking the right balance between promoting financial innovation and mitigating
systemic risks becomes crucial for regulators.

To achieve this balance, specific recommendations could be considered to broaden the regulatory scope and
create a level playing field. These include reviewing and redesigning licensing regimes to encompass new
types of service providers within the regulatory framework where appropriate, implementing more robust
capital, liquidity, and operational risk management requirements that match the risks posed by different
FinTech business models, and strengthening the regulatory framework and supervision for smaller, less
technologically advanced incumbents who may be more vulnerable to FinTech competition. In addition,
incumbents can take measures to adjust their business models by enhancing cost efficiency, diversifying
income sources, consolidating operations, improving internal governance, and addressing problem loans.

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 Annex I. Variable Names, Definition and Sources
Variable Description Source
Dependent variables
ROE Return on Equity (%) = Net Income/Equity Bureau van Dijk Orbis
ROA Return on Assets (%) = Net Income/Assets Bureau van Dijk Orbis
NIM Net Interest Margin (%) = Interest Income-Interest Bureau van Dijk Orbis
Exp/Interest-earning assets
NONIC Non-Interest Income to Average Assets (%) =Non-Interest Bureau van Dijk Orbis
Income/Average Assets
CTI Cost to Income ratio (%) = Operating Exp./Operating Bureau van Dijk Orbis
Income-Non-Operating Income
Explanatory variables
FinTech Log (Total volume of digital lending and capital raising Cambridge Center for Alternative Finance
activities in US$)
P2P Lending Log (Total volume of P2P lending activities in US$) Cambridge Center for Alternative Finance
Balance Sheet Lending Log (Total volume of Balance Sheet lending activities in Cambridge Center for Alternative Finance
US$)
Other control variables
Size Log (Total Assets) Bureau van Dijk Orbis
Equity-Assets ratio Equity to Total Assets (%) Bureau van Dijk Orbis
GDP growth GDP, at constant prices, percent change (%) IMF WEO Database
Inflation Annual percentage of average consumer prices (%) IMF WEO Database
Policy rate Central Bank Policy rate (%) Haver Database
Bank concentration Assets of five largest banks to total bank assets Global Financial Development Database
NPL Non-Performing Loans to Gross Loans (%) Bureau van Dijk Orbis
Total Capital Ratio Total Capital Ratio (%) Bureau van Dijk Orbis
Risk-taking Z-Score Distance from insolvency: (ROA+E/A)/s(ROA), where Authors calculations using Bureau van
s(ROA) is the standard deviation of ROA. Dijk Orbis data
Stock Market Turnover Ratio Total value of shares traded during the period divided by Global Financial Development Database
the average market capitalization for the period. (%)
Private credit by deposit The financial resources provided to the private sector by Global Financial Development Database
money banks to GDP (%) domestic money banks as a share of GDP.
Bank return on equity (%, after Commercial banks’ after-tax net income to yearly Global Financial Development Database
tax) averaged equity.
Regulatory quality Ability of government to implement sound policies that World Governance Indicator
promote private sector development -Percentile rank (0-
100)
Government effectiveness Quality of public services, the quality of the civil service World Governance Indicator
and the degree of its independence from political
pressures, the quality of policy formulation and
implementation, and the credibility of the government's
commitment to such policies- Percentile rank (0-100)
Internet penetration Individuals using the Internet (% of population) World Governance Indicator
Institutional funding for The funding of FinTech platforms by institutional investors Cambridge Center for Alternative Finance
FinTech platforms to support investment strategies or portfolio diversification
for themselves or their clients.

INTERNATIONAL MONETARY FUND 24

Annex II. Descriptive statistics, correlations, and
stylized facts
Table 1: Descriptive statistics

Variable Obs Mean Median Std. Dev. Min Max

LFintech 87384 20.896 22.205 4.089 7.24 26.6
ROE 84311 4.901 4.249 9.217 -47.664 50.971
ROA 84565 .812 0.488 2.145 -9.532 14.261
NIM 84274 4.972 3.131 7.117 -1.656 59.484
NONIC 84530 1.966 0.989 5.175 -.607 55.061
CTI 84220 76.844 78.399 25.177 5.157 216.483
lTotalAssets 84897 11.563 11.395 2.653 -.983 22.106
Equity to Total Assets 84831 16.143 11.569 17.071 -971.677 101.308
NonPerfLoansGrossLoans 27543 8.953 3.495 24.63 0 984.481
Z-Score 74277 1.364e+13 64.685 3.717e+15 -42.781 1.013e+18
Total Capital Ratio 21628 141.725 18.230 16120.203 -5240.14 2369797
Stock Turnover 78449 106.341 108.513 57.622 .27 480.287
Private credit to GDP 90171 140.598 175.676 58.484 10.247 258.45
ROE 91503 8.554 9.736 7.48 -194.894 41.092
Regulatory Quality 91503 80.214 87.678 18.269 13.942 100
Government Effectiveness 91503 81.015 90.521 18.571 10.577 100
GDP Growth 91503 1.469 2.161 2.673 -11.115 25.305
Inflation 91335 2.36 1.812 3.003 -2.074 53.548
Policy Rate 88663 2.258 0.630 4.256 -.75 59.25
Bank Concentration 90992 59.318 47.614 18.117 31.855 100

INTERNATIONAL MONETARY FUND 25

Table 2: Correlations

Variables FinTech ROE ROA NIM NONIC CTI

lfintech 1.000

ROE -0.080* 1.000

(0.000)
ROA -0.102* 0.705* 1.000
(0.000) (0.000)
NIM -0.158* 0.174* 0.346* 1.000
(0.000) (0.000) (0.000)
NONIC -0.087* 0.193* 0.335* 0.090* 1.000
(0.000) (0.000) (0.000) (0.000)
CTI 0.152* -0.532* -0.477* -0.141* -0.025* 1.000
(0.000) (0.000) (0.000) (0.000) (0.000)
NPL -0.078* -0.101* -0.060* 0.182* 0.084* 0.048*
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Z-Score -0.001 -0.002 -0.001 -0.003 -0.001 0.003
(0.701) (0.641) (0.707) (0.483) (0.741) (0.397)
Total Capital Ratio 0.002 0.007 0.007 0.008 -0.002 0.000
(0.758) (0.284) (0.292) (0.247) (0.783) (0.997)
Stock Market Turnover 0.259* -0.083* -0.110* -0.213* -0.128* 0.135*
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Private Credit to GDP 0.552* -0.140* -0.224* -0.383* -0.184* 0.263*
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROE 0.061* 0.099* 0.092* 0.121* -0.010* -0.003
(0.000) (0.000) (0.000) (0.000) (0.004) (0.324)
Regulatory Quality 0.296* -0.180* -0.277* -0.480* -0.150* 0.233*
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Government Effectiveness 0.312* -0.171* -0.288* -0.546* -0.149* 0.207*
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Bank Concentration -0.394* 0.122* 0.186* 0.244* 0.137* -0.264*
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)

INTERNATIONAL MONETARY FUND 26

Table 3: Stylized facts

Financial Institution # of Total Assets(th) ROE ROA NIM NONIC CTI

institutions median median median median median median
Banks
Commercial Bank 1409 985,502 7.094 .8 3.358858 1.105514 59.90551
Cooperative Bank 7151 481,23.16 3.818 .436 3.178233 .9632227 81.47331
Islamic Bank 33 2,485,177 6.555 .6215 1.894553 1.860511 63.95508
Micro-financing Institution 37 186,531 10.5225 2.294 14.79198 2.270579 67.11605
Savings Bank 568 576,127.8 3.72 .4065 2.102961 .9446083 73.67054
Non-Banks
Finance Company 516 427,016.2 7.301 1.0655 4.159253 1.865802 60.68638
Investment Bank 176 1,136,596 5.783 .7455 1.129579 2.373146 68.23625
Investment and Trust 62 1230536 6.2945 .816 .7153499 7.212011 55.10713
Corporation
Real Estate and Mortgage Bank 117 2418287 5.1785 .331 1.256582 .0639484 45.77802
Specialized Government Credit 70 7,956,728 4.73 .3505 .9904929 .4957385 41.58323
Institution

INTERNATIONAL MONETARY FUND 27

Annex III. List of Countries included in the
Sample
# Country Total Alternative Finance Volume 2012- Total Alternative Finance
2020 (in billions of US$) Volume (% of GDP)
1. China 1,018.0 6.9
2. United States 315.7 1.5
3. United Kingdom 58.0 2.2
4. Brazil 7.7 0.5
5. Netherlands 6.1 0.7
6. France 5.8 0.2
7. Germany 5.8 0.2
8. Australia 5.7 0.4
9. India 5.6 0.2
10. Korea, Rep. 5.2 0.3
11. Indonesia 4.5 0.4
12. Italy 4.4 0.2
13. Japan 4.1 0.1
14. Canada 3.1 0.2
15. Israel 2.6 0.6
16. Singapore 2.4 0.7
17. Spain 2.2 0.2
18. Chile 1.9 0.8
19. Finland 1.7 0.6
20. Mexico 1.6 0.1
21. New Zealand 1.6 0.8
22. Sweden 1.5 0.3
23. Poland 1.5 0.2
24. Ghana 1.1 1.7
25. Colombia 1.1 0.4
26. Latvia 1.0 3.0
27. Ukraine 1.0 0.6
28. Hong Kong 0.8 0.2
29. Armenia 0.8 6.4
30. Estonia 0.7 2.4
31. Russian Federation 0.7 0.0
32. Georgia 0.6 3.7
33. Kazakhstan 0.5 0.3
34. Denmark 0.5 0.2
35. Zambia 0.5 2.8
36. Ireland 0.4 0.1
37. Belgium 0.4 0.1
38. Switzerland 0.4 0.1
39. Peru 0.4 0.2
40. Czech Republic 0.3 0.1
41. Philippines 0.3 0.1

INTERNATIONAL MONETARY FUND 28

 42. Moldova 0.3 2.9
43. Malaysia 0.3 0.1
44. Argentina 0.3 0.1
45. United Arab Emirates 0.3 0.1
46. Kenya 0.3 0.3
47. Slovenia 0.3 0.5
48. Uganda 0.2 0.6
49. Norway 0.2 0.1
50. Tanzania 0.2 0.3
51. Austria 0.2 0.0
52. Vietnam 0.2 0.1
53. Bulgaria 0.2 0.3
54. Albania 0.2 1.1
55. South Africa 0.1 0.0
56. Romania 0.1 0.0
57. Nigeria 0.1 0.0

INTERNATIONAL MONETARY FUND 29

Annex IV. Digital lending and capital raising
activities

Digital lending activities

P2P/Marketplace Lending Individuals or institutional funders provide a loan to a consumer
borrower, business borrower, or secured against a property,
commonly ascribed to off-balance sheet lending.
Balance Sheet Lending The platform entity provides a loan directly to the consumer
borrower, business borrower, or secured against a property,
ascribed to on-balance sheet nonbank lending.
Invoice Trading Individuals or institutional funders purchase invoices or
receivables from a business at a discount.
Securities Debt-based: Individuals or institutional funders purchase debt-
based securities, typically a bond or debenture, at a fixed interest
rate.
Mini-bonds: Individuals or institutions purchase securities from
companies in the form of an unsecured bond which is ‘mini’
because the issue size is much smaller than the minimum issue
amount needed for a bond issued in institutional capital markets.
Consumer Purchase A buy now/pay later payment facilitator or Store Credit solution.
Finance/BNPL

Digital capital raising activities

Equity-based Individuals or institutional funders purchase equity issued by a
company; provide equity or subordinated debt financing for real
estate; purchase securities from a company, such as shares or
bonds, and share in the profits or royalties of the business.
Non-Investment based Backers provide funding to individuals, projects or companies in
exchange for non-monetary rewards or products. Donors provide
funding to individuals, projects or companies based on
philanthropic or civic motivations with no expectation of monetary
or material. Interests and/or other profits are re-invested (forgoing
the interest by donating) or provides microcredit at lower rates.

Source: Cambridge Center for Alternative Finance (2021)

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Annex V. Emergence of Fintech Transactions
Worldwide: Key Stylized Facts
Figure 5-7 show the key trends of the global online alternative finance market (FinTech). FinTech volumes grew up
significantly until 2017. They have declined since driven largely by the decrease in volume from China. However,
market developments in China and the rest of the world have followed different trajectories. Local market
developments and regulatory changes in China have led to a considerable decline in volumes and its global market
share. US and Canada followed by the UK appear to have taken over and became the largest regional alternative
market in 2020. P2P lending stands out as the largest business model when considering China in our analysis. When
excluding China, total alternative finance volumes show gradual growth driven by both P2P/Marketplace Lending and
Balance Sheet Lending.
Figure 5. FinTech finance volumes
(Including China (left) and excluding China (right); in US$ billions)
500 120
400 100
in billions $US
in billions $US

80
300
60
200
40
100 20
0 0
2012

2013

2014

2015

2016

2017

2018

2019

2020
2012

2013

2014

2015

2016

2017

2018

2019

2020

Figure 6. Market share

(Including China (left) and excluding China (right); in US$ billions)
100% 100%
20%
30%
3%
3%
6% 65% 58%
71% 67%
7%
50% 50%
71% 12%
48% 11%
12% 5% 11%
9% 2% 12% 5%
1%
8% 7% 8%
0% 2% 5% 7% 11% 8%
0%
2018 2019 2020 2018 2019 2020
APAC China Europe APAC Europe LAC
LAC MENA SSA MENA SSA UK
UK US & Canada US & Canada

Figure 7. FinTech finance volumes by model

(Including China (left) and excluding China (right); in US$ billions)

Source: Authors calculations using CCAF (2021) Database.

INTERNATIONAL MONETARY FUND 31

Annex VI. Detailed Regression Output Tables
I. Effect of FinTech Business Models on Cooperative Banks

Table 1: Effect of P2P lending on performance measures of Cooperative Banks

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
P2P lending -0.333*** -0.128*** -0.111*** 0.0192 0.676***
(0.0477) (0.0103) (0.0216) (0.0141) (0.128)

Size 4.905*** 1.161*** 0.207 -0.254 -12.84***

(0.419) (0.0870) (0.178) (0.165) (1.086)

Equity-Assets ratio 0.381*** 0.0820*** 0.0813*** -0.00163 -0.602***

(0.0478) (0.0121) (0.0159) (0.0107) (0.108)

GDP growth 0.158*** 0.0187*** 0.0170*** 0.0112*** -0.478***

(0.0141) (0.00287) (0.00591) (0.00416) (0.0364)

Inflation -0.0913* -0.115*** -0.309*** -0.0168 0.282**

(0.0515) (0.0118) (0.0247) (0.0155) (0.112)

Policy rate 0.287*** 0.180*** 0.404*** 0.0109 -1.150***

(0.0403) (0.0126) (0.0291) (0.0211) (0.0905)

Concentration 0.0225* 0.0156*** 0.0125* -0.00164 0.189***

(0.0124) (0.00167) (0.00656) (0.00453) (0.0262)

Constant -48.39*** -11.04*** 2.924* 3.639** 204.7***

(4.308) (0.837) (1.650) (1.605) (9.983)
N 52026 52035 52030 52039 52015
rho 0.770 0.881 0.936 0.891 0.817
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 32

Table 2: Effect of Balance Sheet Lending on performance measures of Cooperative Banks

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
Balance Sheet lending -0.192*** -0.0910*** -0.142*** 0.0177* -0.0944
(0.0323) (0.00761) (0.0125) (0.00939) (0.0851)

Size 5.400*** 1.248*** 0.351* -0.296* -11.21***

(0.453) (0.0929) (0.188) (0.176) (1.286)

Equity-Assets ratio 0.461*** 0.0924*** 0.0802*** -0.00222 -0.630***

(0.0544) (0.0139) (0.0156) (0.0106) (0.122)

GDP growth 0.173*** 0.0168*** -0.0102 0.00733 -0.515***

(0.0160) (0.00332) (0.00748) (0.00515) (0.0437)

Inflation 0.0973* -0.0512*** -0.254*** -0.0221 -0.259***

(0.0574) (0.0111) (0.0202) (0.0259) (0.0862)

Policy rate 0.117*** 0.132*** 0.436*** 0.0288 -0.775***

(0.0444) (0.0121) (0.0338) (0.0243) (0.0813)

Concentration 0.0275 0.00724*** 0.00734** 0.00289 0.241***

(0.0208) (0.00222) (0.00332) (0.00412) (0.0373)

Constant -57.69*** -12.40*** 2.286 3.845** 202.6***

(4.818) (0.892) (1.814) (1.739) (12.30)
N 48047 48056 48053 48060 48038
rho 0.793 0.892 0.948 0.912 0.780
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 33

II. Effect of FinTech Business Models on Commercial Banks

Table 3: Effect of P2P lending on performance measures of Commercial Banks

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
P2P lending -0.0489 -0.0153 0.00653 0.0611*** 0.286**
(0.0467) (0.0105) (0.0239) (0.0165) (0.119)

Size 2.151*** 0.647*** -0.122 -0.257 -7.790***

(0.703) (0.140) (0.131) (0.268) (2.240)

Equity-Assets ratio -0.00515 0.0168** 0.0354** 0.0132 0.206**

(0.0311) (0.00836) (0.0140) (0.0121) (0.0913)

GDP growth 0.485*** 0.0828*** 0.0752*** -0.0103 -0.412***

(0.0483) (0.0108) (0.0172) (0.0161) (0.116)

Inflation -0.180* -0.0483* 0.130* 0.118** -0.429**

(0.0975) (0.0281) (0.0759) (0.0544) (0.201)

Policy rate 0.128* 0.0433** 0.0416 0.0457 0.0140

(0.0759) (0.0195) (0.0417) (0.0400) (0.150)

Concentration 0.0819*** 0.0131*** -0.0272*** 0.00686 0.0826

(0.0228) (0.00435) (0.00948) (0.00631) (0.0656)

Constant -28.43*** -9.154*** 7.164*** 3.937 162.1***

(10.25) (2.088) (2.200) (3.873) (32.41)
N 7762 7855 7809 7842 7786
rho 0.659 0.682 0.788 0.846 0.673
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 34

Table 4: Effect of Balance Sheet lending on performance measures of Commercial Banks

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
Balance Sheet lending -0.0749 -0.0120 -0.0612*** 0.0225 0.449***
(0.0756) (0.0145) (0.0228) (0.0320) (0.149)

Size 4.080*** 0.846*** -0.733* 0.467 -8.370**

(0.853) (0.201) (0.410) (0.662) (3.542)

Equity-Assets ratio 0.0824* 0.0234 0.0188 0.0232 0.0174

(0.0431) (0.0154) (0.0261) (0.0285) (0.188)

GDP growth 0.609*** 0.0970*** 0.0617*** 0.0236 -0.577***

(0.0643) (0.0143) (0.0178) (0.0238) (0.142)

Inflation -0.425*** -0.0727* 0.327*** 0.185** -0.123

(0.129) (0.0379) (0.121) (0.0895) (0.218)

Policy rate 0.252*** 0.0745*** 0.0190 0.0307 -0.0530

(0.0902) (0.0258) (0.0469) (0.0504) (0.181)

Concentration 0.0849** 0.0172** -0.00368 -0.00459 0.197

(0.0379) (0.00862) (0.0112) (0.0104) (0.181)

Constant -59.22*** -13.03*** 15.84** -5.413 166.0***

(13.24) (3.210) (6.431) (10.06) (54.49)
N 4153 4220 4191 4215 4179
rho 0.806 0.782 0.801 0.889 0.744
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 35

III. Effect of FinTech depending on selected country and bank-specific characteristics

Table 5: Effect of FinTech and its interaction with lower bank concentration

(1) (2)
ROE ROA
FinTech -0.0337 -0.0237***
(0.0242) (0.00507)
Low concentration 1.415*** 0.0198
(0.471) (0.0979)

FinTech*Low concentration -0.0704*** -0.00210

(0.0204) (0.00418)

Size 3.221*** 0.733***

(0.419) (0.0889)

Equity-Assets ratio 0.112*** 0.0439***

(0.0215) (0.00534)

GDP growth 0.225*** 0.0362***

(0.0157) (0.00334)

Inflation -0.187*** -0.0574***

(0.0531) (0.0117)

Policy rate 0.254*** 0.103***

(0.0428) (0.0107)

Constant -33.52*** -7.904***

(4.741) (1.007)
N 79949 80129
rho 0.679 0.776
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 36

Table 6: Effect of FinTech and its interaction with higher Stock Turnover Ratio

(1) (2)
ROE ROA
FinTech -0.0797*** -0.0245***
(0.0124) (0.00258)

High Stock turnover 0.709 0.159

(0.476) (0.103)

FinTech*High Stock -0.0418* -0.00646

turnover
(0.0218) (0.00467)

Size 3.126*** 0.734***

(0.428) (0.0916)

Equity-Assets ratio 0.108*** 0.0435***

(0.0218) (0.00543)

GDP growth 0.237*** 0.0361***

(0.0154) (0.00334)

Inflation -0.188*** -0.0573***

(0.0537) (0.0118)

Policy rate 0.226*** 0.103***

(0.0438) (0.0111)

Concentration -0.00302 -0.00323*

(0.00823) (0.00183)
Constant -31.10*** -7.719***
(4.969) (1.065)
N 79523 79701
rho 0.675 0.777
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 37

Table 7: Effect of FinTech and its interaction with higher private credit to GDP

(1) (2)
ROE ROA
FinTech -0.0679*** -0.0232***
(0.0120) (0.00250)

High credit to GDP 2.875*** 0.456***

(0.399) (0.0834)

FinTech*High Credit to -0.140*** -0.0196***

GDP
(0.0178) (0.00364)

Size 3.163*** 0.737***

(0.421) (0.0901)

Equity-Assets ratio 0.108*** 0.0436***

(0.0217) (0.00541)

GDP growth 0.242*** 0.0359***

(0.0153) (0.00329)

Inflation -0.211*** -0.0599***

(0.0536) (0.0118)

Policy rate 0.259*** 0.106***

(0.0423) (0.0106)

Concentration -0.00318 -0.00293

(0.00825) (0.00184)

Constant -31.80*** -7.799***

(4.913) (1.052)
N 79523 79701
rho 0.679 0.779
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 38

Table 8: Effect of FinTech and its interaction with higher Commercial Bank’s ROE

(1) (2)
ROE ROA
FinTech -0.0682*** -0.0214***
(0.0119) (0.00244)

High ROE 0.880** 0.333***

(0.436) (0.0938)

FinTech*High ROE -0.0592*** -0.0164***

(0.0195) (0.00410)

Equity-Assets ratio 0.106*** 0.0430***

(0.0217) (0.00540)

Size 3.091*** 0.720***

(0.417) (0.0892)

GDP growth 0.248*** 0.0375***

(0.0151) (0.00329)

Inflation -0.196*** -0.0590***

(0.0538) (0.0118)

Policy rate 0.235*** 0.102***

(0.0425) (0.0107)

Concentration -0.00455 -0.00246

(0.00808) (0.00178)
Constant -30.74*** -7.635***
(4.870) (1.043)
N 79523 79701
rho 0.672 0.774
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 39

Table 9: Effect of FinTech and its interaction with higher regulatory quality

(1) (2)
ROE ROA
FinTech -0.0925*** -0.0249***
(0.0111) (0.00228)

High Regulatory Quality -6.936*** -1.088

(2.068) (0.718)

FinTech*High 0.316** 0.0878*

Regulatory Quality
(0.144) (0.0532)

Size 3.222*** 0.730***

(0.409) (0.0877)

Equity-Assets ratio 0.112*** 0.0435***

(0.0214) (0.00536)

GDP growth 0.228*** 0.0360***

(0.0154) (0.00330)

Inflation -0.189*** -0.0574***

(0.0535) (0.0117)

Policy rate 0.245*** 0.103***

(0.0426) (0.0107)

Concentration -0.00568 -0.00321*

(0.00825) (0.00184)

Constant -31.94*** -7.654***

(4.782) (1.027)
N 79523 79701
rho 0.681 0.776
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 40

Table 10: Effect of FinTech and its interaction with higher government effectiveness

(1) (2)
ROE ROA
FinTech -0.0955*** -0.0252***
(0.0108) (0.00225)

High Government -21.14*** -2.036***

Effectiveness
(2.986) (0.556)

FinTech*High 1.513*** 0.144***

Government
Effectiveness
(0.207) (0.0368)

Size 3.246*** 0.734***

(0.397) (0.0862)

Equity-Assets ratio 0.115*** 0.0440***

(0.0211) (0.00537)

GDP growth 0.227*** 0.0359***

(0.0154) (0.00330)

Inflation -0.191*** -0.0573***

(0.0535) (0.0117)

Policy rate 0.246*** 0.103***

(0.0426) (0.0107)

Concentration -0.00903 -0.00334*

(0.00828) (0.00183)
Constant -32.02*** -7.703***
(4.655) (1.009)
N 79523 79701
rho 0.683 0.777
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 41

Table 11: Effect of FinTech and its interaction with lower NPLs of incumbents

(1) (2)
ROE ROA
FinTech -0.0816*** -0.0214***
(0.0112) (0.00227)

Low NPLs 4.512*** 1.416***

(0.739) (0.164)

FinTech*Low NPLs -0.157*** -0.0570***

(0.0365) (0.00811)

Size 3.212*** 0.736***

(0.420) (0.0893)

Equity-Assets ratio 0.112*** 0.0440***

(0.0217) (0.00540)

GDP growth 0.227*** 0.0359***

(0.0155) (0.00330)

Inflation -0.183*** -0.0559***

(0.0534) (0.0117)

Policy rate 0.226*** 0.0961***

(0.0433) (0.0107)

Concentration -0.00412 -0.00223

(0.00820) (0.00181)

Constant -32.36*** -7.909***

(4.936) (1.049)
N 79523 79701
rho 0.685 0.780
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 42

Table 12: Effect of FinTech and its interaction with lower solvency of incumbents

(1) (2)
ROE ROA

FinTech -0.0998*** -0.0234***

(0.0119) (0.00230)

High Z-Score 2.054*** 0.921***

(0.486) (0.115)

FinTech*High Z- -0.0636*** -0.0350***

Score
(0.0210) (0.00482)

Size 3.260*** 0.749***

(0.425) (0.0905)

Equity-Assets ratio 0.106*** 0.0424***

(0.0218) (0.00541)

GDP growth 0.226*** 0.0351***

(0.0154) (0.00328)

Inflation -0.183*** -0.0559***

(0.0532) (0.0116)

Policy rate 0.232*** 0.0983***

(0.0425) (0.0105)

Concentration 0.000566 -0.000494

(0.00803) (0.00173)

Constant -32.81*** -8.115***

(4.998) (1.067)
N 79523 79701
rho 0.688 0.784
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 43

Table 13: Effect of FinTech and its interaction with higher capital of incumbents

(1) (2)
ROE ROA
FinTech 0.0375 0.0102
(0.0552) (0.00842)

High capital 2.988*** 0.745***

(1.122) (0.176)

FinTech*High capital -0.119** -0.0314***

(0.0543) (0.00823)

Size 2.501*** 0.469***

(0.335) (0.0647)

GDP growth 0.220*** 0.0327***

(0.0148) (0.00313)

Inflation -0.194*** -0.0610***

(0.0533) (0.0118)

Policy rate 0.256*** 0.108***

(0.0427) (0.0109)

Concentration -0.0101 -0.00468**

(0.00822) (0.00182)

Constant -24.78*** -4.695***

(3.857) (0.736)
N 79523 79754
rho 0.633 0.739
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 44

IV. Robustness Checks

Table 14: Effect of FinTech-Assets on the performance of incumbents

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech-Assets -0.321** -0.177*** -0.300*** 0.172*** 0.482
(0.153) (0.0365) (0.0595) (0.0418) (0.382)

Size 2.974*** 0.686*** -0.132 -0.511*** -9.094***

(0.388) (0.0820) (0.125) (0.147) (1.146)

Equity-Assets ratio 0.103*** 0.0422*** 0.0370*** 0.0171** -0.0924*

(0.0212) (0.00528) (0.00950) (0.00666) (0.0511)

GDP growth 0.241*** 0.0383*** 0.0401*** 0.0109** -0.430***

(0.0156) (0.00331) (0.00547) (0.00481) (0.0381)

Inflation -0.144*** -0.0490*** -0.0440** 0.0263 -0.203**

(0.0523) (0.0114) (0.0204) (0.0182) (0.0980)

Policy rate 0.202*** 0.0907*** 0.179*** 0.0130 -0.488***

(0.0413) (0.0102) (0.0212) (0.0145) (0.0730)

Concentration -0.00935 -0.00355** 0.00396 0.00956*** 0.0810***

(0.00817) (0.00181) (0.00338) (0.00255) (0.0186)

Constant -30.69*** -7.599*** 5.467*** 6.780*** 180.2***

(4.657) (0.987) (1.548) (1.687) (13.52)
N 79523 79701 79438 79666 79384
rho 0.660 0.763 0.911 0.911 0.749
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 45

Table 15: Effect of FinTech-GDP on the performance of incumbents

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech-GDP -0.144 -0.221*** -0.353*** 0.210*** 0.340
(0.160) (0.0381) (0.0515) (0.0486) (0.428)

Size 2.929*** 0.676*** -0.151 -0.501*** -9.038***

(0.384) (0.0812) (0.126) (0.146) (1.138)

Equity-Assets 0.103*** 0.0422*** 0.0369*** 0.0172*** -0.0919*

(0.0211) (0.00527) (0.00950) (0.00665) (0.0510)

GDP growth 0.243*** 0.0382*** 0.0403*** 0.0109** -0.433***

(0.0156) (0.00334) (0.00557) (0.00481) (0.0375)

Inflation -0.133** -0.0456*** -0.0378* 0.0229 -0.217**

(0.0522) (0.0113) (0.0202) (0.0183) (0.0990)

Policy rate 0.205*** 0.0942*** 0.185*** 0.00973 -0.495***

(0.0417) (0.0104) (0.0215) (0.0147) (0.0735)

Concentration -0.0107 -0.00456** 0.00229 0.0105*** 0.0832***

(0.00825) (0.00184) (0.00347) (0.00261) (0.0187)

Constant -30.16*** -7.447*** 5.753*** 6.627*** 179.5***

(4.603) (0.976) (1.557) (1.677) (13.39)
N 79523 79701 79438 79666 79384
rho 0.656 0.759 0.910 0.911 0.748
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 46

Table 16: Effect of combined FinBigTech on the performance of incumbents

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinBigTech -0.0898*** -0.0245*** -0.0259*** 0.0110*** 0.130***
(0.0113) (0.00234) (0.00338) (0.00342) (0.0293)

Size 3.304*** 0.747*** -0.0863 -0.492*** -9.633***

(0.420) (0.0884) (0.130) (0.152) (1.205)

Equity-Assets ratio 0.101*** 0.0417*** 0.0385*** 0.0132** -0.0811

(0.0209) (0.00525) (0.00939) (0.00647) (0.0521)

GDP growth 0.236*** 0.0377*** 0.0406*** 0.0112** -0.422***

(0.0154) (0.00327) (0.00541) (0.00467) (0.0367)

Inflation -0.173*** -0.0515*** -0.0329 0.0259 -0.145

(0.0515) (0.0113) (0.0203) (0.0184) (0.0970)

Policy rate 0.235*** 0.0967*** 0.169*** 0.00821 -0.565***

(0.0393) (0.00983) (0.0196) (0.0142) (0.0707)

Concentration -0.00743 -0.00352* 0.00299 0.00960*** 0.0770***

(0.00819) (0.00182) (0.00339) (0.00257) (0.0187)

Constant -32.67*** -7.818*** 5.469*** 6.447*** 183.8***

(4.906) (1.033) (1.571) (1.701) (13.85)
N 79948 80126 79861 80089 79805
rho 0.684 0.776 0.909 0.903 0.759
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 47

Table 17: 2SLS Regressions using Internet Penetration as an Instrumental Variable

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.119*** -0.0624*** -0.0560*** 0.0376*** 0.00174
(0.0156) (0.00310) (0.00508) (0.00385) (0.0331)

Size 3.305*** 0.843*** -0.0122 -0.593*** -9.011***

(0.115) (0.0219) (0.0364) (0.0270) (0.244)

Equity-Assets 0.113*** 0.0459*** 0.0396*** 0.0154*** -0.0916***

(0.00666) (0.00122) (0.00197) (0.00148) (0.0131)

GDP growth 0.224*** 0.0292*** 0.0338*** 0.0156*** -0.437***

(0.0113) (0.00227) (0.00372) (0.00283) (0.0241)

Inflation -0.204*** -0.0804*** -0.0662*** 0.0424*** -0.222***

(0.0214) (0.00428) (0.00701) (0.00533) (0.0454)

Policy rate 0.255*** 0.119*** 0.205*** -0.00411 -0.490***

(0.0184) (0.00370) (0.00605) (0.00461) (0.0392)

Concentration -0.00533 -0.00147 0.00535*** 0.00850*** 0.0829***

(0.00590) (0.00118) (0.00194) (0.00147) (0.0126)

Constant -32.35*** -8.263*** 5.113*** 7.033*** 179.3***

(1.313) (0.251) (0.415) (0.309) (2.774)
N 79496 79674 79411 79639 79357
rho 0.688 0.805 0.910 0.914 0.747
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 48

Table 18: 2SLS Regressions using all other countries FinTech as an Instrumental Variable

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.136*** -0.0308*** -0.0227*** 0.00622*** 0.0719***
(0.00909) (0.00181) (0.00297) (0.00226) (0.0193)

Size 3.361*** 0.748*** -0.114*** -0.501*** -9.238***

(0.107) (0.0204) (0.0341) (0.0253) (0.228)

Equity-Assets ratio 0.114*** 0.0438*** 0.0377*** 0.0172*** -0.0957***

(0.00657) (0.00120) (0.00195) (0.00147) (0.0130)

GDP percent 0.221*** 0.0349*** 0.0398*** 0.00982*** -0.423***

(0.0111) (0.00221) (0.00364) (0.00276) (0.0236)

Inflation -0.214*** -0.0607*** -0.0456*** 0.0229*** -0.179***

(0.0199) (0.00397) (0.00652) (0.00496) (0.0423)

Policy rate 0.262*** 0.105*** 0.191*** 0.00943** -0.522***

(0.0176) (0.00352) (0.00577) (0.00439) (0.0374)

Concentration -0.00462 -0.00282** 0.00392** 0.00987*** 0.0796***

(0.00588) (0.00117) (0.00193) (0.00147) (0.0125)

Constant -32.69*** -7.764*** 5.664*** 6.559*** 180.6***

(1.290) (0.247) (0.409) (0.305) (2.727)
N 79523 79701 79438 79666 79384
rho 0.693 0.781 0.910 0.911 0.752
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 49

Table 19: 2SLS Regressions using Regional Institutional Funding as an Instrumental Variable

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.550*** -0.212*** -0.194*** 0.0272 0.0561
(0.0734) (0.0152) (0.0248) (0.0183) (0.150)

Size 4.606*** 1.071*** 0.121** -0.389*** -8.862***

(0.155) (0.0304) (0.0484) (0.0354) (0.302)

Equity-Assets ratio 0.140*** 0.0507*** 0.0427*** 0.0119*** -0.0933***

(0.00826) (0.00159) (0.00254) (0.00185) (0.0159)

GDP growth 0.228*** 0.0314*** 0.0337*** 0.0180*** -0.417***

(0.0115) (0.00241) (0.00396) (0.00291) (0.0239)

Inflation -0.179*** -0.0559*** -0.0618*** 0.0190*** -0.205***

(0.0206) (0.00433) (0.00709) (0.00522) (0.0428)

Policy rate 0.177*** 0.0794*** 0.208*** -0.00197 -0.586***

(0.0249) (0.00522) (0.00854) (0.00630) (0.0516)

Concentration 0.0222** 0.0126*** 0.0117*** 0.000715 0.175***

(0.0112) (0.00235) (0.00385) (0.00283) (0.0233)

Constant -39.81*** -8.445*** 6.480*** 5.573*** 170.9***

(1.842) (0.379) (0.615) (0.451) (3.765)
N 56880 57016 56826 56992 56786
rho 0.800 0.859 0.905 0.910 0.767
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 50

Table 20: Two-Step GMM Results

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.274*** -0.0631*** -0.0623** 0.0228* 0.190**
(0.0467) (0.0132) (0.0254) (0.0129) (0.0924)

Size -1.148*** -0.334*** -0.502** 0.640*** -5.309***

(0.365) (0.0945) (0.196) (0.104) (0.665)

Equity-Assets ratio 0.527*** 0.186*** 0.590*** 0.0606*** -1.156***

(0.0727) (0.0203) (0.0472) (0.0211) (0.123)

GDP growth 0.140*** -0.00351 -0.0261*** 0.0250*** -0.294***

(0.0213) (0.00568) (0.00901) (0.00525) (0.0391)

Inflation -0.267*** -0.101*** -0.0604*** 0.0588** -0.0560

(0.0764) (0.0222) (0.0204) (0.0247) (0.136)

Policy rate 0.228*** 0.101*** 0.139*** -0.00777 -0.488***

(0.0508) (0.0153) (0.0247) (0.0156) (0.0863)

Concentration 0.00210 0.000456 0.0198*** 0.00993*** 0.0475**

(0.00887) (0.00262) (0.00481) (0.00252) (0.0195)

Year 0.183*** 0.0193* -0.0346* -0.0380*** 0.0226

(0.0409) (0.0107) (0.0207) (0.0111) (0.0883)

Constant -354.6*** -36.00* 71.07* 69.01*** 106.0

(79.36) (20.66) (40.05) (21.47) (171.8)
N 79523 79701 79438 79666 79384
rho
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 51

Table 21: Balanced Panel

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.0674*** -0.00705*** -0.0143*** 0.00106 0.114***
(0.0112) (0.00218) (0.00337) (0.00273) (0.0228)

Size 2.585*** 0.379*** -0.336*** -0.562*** -9.004***

(0.413) (0.0691) (0.118) (0.162) (0.902)

Equity-Assets ratio 0.281*** 0.0642*** 0.0435*** 0.0337* -0.273**

(0.0492) (0.00922) (0.00854) (0.0192) (0.107)

GDP growth 0.195*** 0.0264*** 0.00436 -0.00787 -0.492***

(0.0233) (0.00475) (0.00973) (0.00606) (0.0619)

Inflation 0.0806 0.00826 -0.00209 -0.0205 -0.407***

(0.0680) (0.0134) (0.0208) (0.0165) (0.122)

Policy rate 0.172** 0.0163 0.119*** 0.0267** -1.028***

(0.0844) (0.0212) (0.0433) (0.0134) (0.203)

Concentration -0.0105 0.000222 -0.00842 -0.00602 0.104*

(0.0198) (0.00352) (0.00907) (0.00437) (0.0534)

Constant -27.26*** -4.538*** 7.313*** 7.467*** 180.8***

(5.194) (0.852) (1.358) (1.948) (10.97)
N 54371 54371 54371 54371 54371
rho 0.606 0.659 0.900 0.947 0.747
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 52

Table 22: Lagged FinTech variable

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
L.FinTech -0.0471*** -0.0212*** -0.0163*** 0.00879*** -0.0425
(0.0114) (0.00239) (0.00317) (0.00322) (0.0303)

Size 3.449*** 0.810*** -0.0540 -0.480*** -9.387***

(0.493) (0.108) (0.137) (0.159) (1.397)

Equity-Assets 0.112*** 0.0451*** 0.0353*** 0.0146** -0.130**

(0.0237) (0.00593) (0.00998) (0.00698) (0.0565)

GDP growth 0.227*** 0.0351*** 0.0393*** 0.0140*** -0.427***

(0.0161) (0.00345) (0.00564) (0.00461) (0.0382)

Inflation -0.189*** -0.0608*** 0.00901 0.0344 -0.191**

(0.0514) (0.0119) (0.0355) (0.0285) (0.0909)

Policy rate 0.309*** 0.129*** 0.199*** -0.0185 -0.652***

(0.0390) (0.0106) (0.0233) (0.0163) (0.0712)

Concentration -0.0144* -0.00260 0.0100*** 0.00523** 0.106***

(0.00791) (0.00176) (0.00290) (0.00211) (0.0182)

Constant -35.19*** -8.775*** 4.452*** 6.629*** 183.9***

(5.737) (1.258) (1.608) (1.790) (16.01)
N 71881 72040 71800 72008 71751
rho 0.711 0.799 0.909 0.919 0.767
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 53

Table 23: Adding a COVID-19 dummy (1= Year 2020; 0=Year 2012-2019)

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.0900*** -0.0230*** -0.0242*** 0.00825*** 0.114***
(0.0110) (0.00227) (0.00313) (0.00317) (0.0280)

Size 3.216*** 0.748*** -0.0577 -0.548*** -9.736***

(0.427) (0.0912) (0.130) (0.154) (1.270)

Equity-Assets ratio 0.110*** 0.0437*** 0.0385*** 0.0165** -0.102*

(0.0218) (0.00542) (0.00957) (0.00667) (0.0526)

GDP growth 0.223*** 0.00613 -0.0259 0.0643*** 0.00588

(0.0403) (0.00907) (0.0183) (0.0121) (0.0776)

Inflation -0.187*** -0.0625*** -0.0607*** 0.0360* -0.0619

(0.0530) (0.0117) (0.0225) (0.0193) (0.0997)

Policy rate 0.241*** 0.0957*** 0.179*** 0.0189 -0.459***

(0.0459) (0.0111) (0.0228) (0.0159) (0.0787)

Concentration -0.00650 -0.00282 0.00471 0.00919*** 0.0732***

(0.00819) (0.00181) (0.00334) (0.00253) (0.0186)

Covid -0.0438 -0.240*** -0.521*** 0.430*** 3.361***

(0.302) (0.0672) (0.138) (0.0970) (0.624)

Constant -31.84*** -7.835*** 5.200*** 6.932*** 184.5***

(4.973) (1.063) (1.560) (1.723) (14.53)
N 79523 79701 79438 79666 79384
rho 0.681 0.780 0.911 0.912 0.763
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 54

Table 24: Adding Time Fixed Effects with no macro controls

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.0108 -0.0442*** -0.147*** 0.0342*** 0.592***
(0.0341) (0.00782) (0.0146) (0.0126) (0.0823)

Size 3.100*** 0.751*** -0.157 -0.699*** -9.539***

(0.431) (0.0962) (0.136) (0.169) (1.266)

Equity-Assets 0.112*** 0.0482*** 0.0399*** 0.0212*** -0.102**

ratio
(0.0214) (0.00540) (0.00961) (0.00691) (0.0513)

Year=2012 0 0 0 0 0
(.) (.) (.) (.) (.)

Year=2013 -0.500 0.322*** 1.299*** -0.325*** -3.748***

(0.341) (0.0758) (0.145) (0.125) (0.811)

Year=2014 -0.110 0.477*** 1.407*** -0.353** -5.455***

(0.380) (0.0859) (0.163) (0.139) (0.900)

Year=2015 -0.581 0.460*** 1.567*** -0.380** -6.074***

(0.415) (0.0935) (0.179) (0.153) (0.992)

Year=2016 -0.798* 0.413*** 1.681*** -0.360** -5.702***

(0.421) (0.0946) (0.184) (0.151) (1.002)

Year=2017 -0.985** 0.375*** 1.801*** -0.344** -5.665***

(0.432) (0.0944) (0.187) (0.152) (1.021)

Year=2018 -0.476 0.408*** 1.842*** -0.351** -7.204***

(0.447) (0.0972) (0.189) (0.157) (1.059)

Year=2019 -0.698 0.348*** 1.855*** -0.298* -6.652***

(0.453) (0.0964) (0.188) (0.158) (1.071)

Year=2020 -2.475*** 0.0269 1.256*** -0.357** -2.322**

(0.465) (0.0975) (0.194) (0.157) (1.098)

Constant -31.69*** -8.032*** 7.763*** 9.253*** 181.2***

(5.077) (1.123) (1.655) (1.900) (14.63)
N 82613 82799 82513 82756 82461
rho 0.660 0.780 0.907 0.907 0.755
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 55

Table 25: Excluding China observations from the sample

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.0946*** -0.0254*** -0.0278*** 0.0111*** 0.138***
(0.0115) (0.00238) (0.00344) (0.00344) (0.0298)

Size 3.275*** 0.741*** -0.0960 -0.513*** -9.458***

(0.427) (0.0899) (0.130) (0.153) (1.234)

Equity-Assets ratio 0.113*** 0.0436*** 0.0383*** 0.0169** -0.103*

(0.0220) (0.00544) (0.00962) (0.00671) (0.0525)

GDP growth 0.224*** 0.0352*** 0.0389*** 0.0107** -0.410***

(0.0155) (0.00330) (0.00554) (0.00464) (0.0369)

Inflation -0.186*** -0.0569*** -0.0486** 0.0260 -0.138

(0.0535) (0.0117) (0.0210) (0.0189) (0.101)

Policy rate 0.243*** 0.102*** 0.193*** 0.00734 -0.550***

(0.0426) (0.0107) (0.0220) (0.0151) (0.0757)

Concentration -0.00669 -0.00312* 0.00413 0.00964*** 0.0768***

(0.00825) (0.00183) (0.00344) (0.00258) (0.0188)

Constant -32.28*** -7.728*** 5.578*** 6.577*** 181.7***

(4.961) (1.046) (1.560) (1.698) (14.07)
N 78487 78665 78405 78631 78350
rho 0.676 0.771 0.910 0.912 0.755
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 56

Table 26: Excluding China and US observations from the sample

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.101** -0.0562*** -0.0708*** 0.0615*** 0.649***
(0.0495) (0.0113) (0.0214) (0.0166) (0.116)

Size 3.163*** 0.838*** -0.0831 -0.719*** -9.832***

(0.555) (0.127) (0.171) (0.203) (1.680)

Equity-Assets ratio 0.0665*** 0.0409*** 0.0406*** 0.0167** -0.0387

(0.0237) (0.00609) (0.0111) (0.00748) (0.0579)

GDP growth 0.243*** 0.0455*** 0.0773*** 0.0266*** -0.168***

(0.0216) (0.00476) (0.00852) (0.00616) (0.0458)

Inflation -0.213*** -0.0593*** -0.0445* 0.0286 -0.0856

(0.0576) (0.0126) (0.0229) (0.0205) (0.108)

Policy rate 0.253*** 0.105*** 0.189*** 0.0147 -0.320***

(0.0498) (0.0121) (0.0256) (0.0179) (0.0819)

Concentration -0.00350 -0.00135 0.0105*** 0.00799*** 0.0304

(0.00841) (0.00180) (0.00324) (0.00240) (0.0198)

Constant -32.75*** -9.045*** 7.857*** 9.735*** 178.3***

(6.905) (1.577) (2.283) (2.432) (20.46)
N 30066 30224 30004 30191 29965
rho 0.684 0.742 0.891 0.883 0.763
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 57

Table 27: Excluding China, US, and UK observations from the sample

(1) (2) (3) (4) (5)

ROE ROA NIM NONIC CTI
FinTech -0.0984** -0.0550*** -0.0732*** 0.0608*** 0.648***
(0.0499) (0.0114) (0.0215) (0.0165) (0.117)

Size 3.213*** 0.851*** -0.0977 -0.602*** -9.721***

(0.564) (0.129) (0.173) (0.188) (1.690)

Equity-Assets ratio 0.0655*** 0.0412*** 0.0413*** 0.0154** -0.0406

(0.0241) (0.00617) (0.0112) (0.00726) (0.0580)

GDP growth 0.243*** 0.0454*** 0.0778*** 0.0275*** -0.167***

(0.0217) (0.00477) (0.00854) (0.00612) (0.0459)

Inflation -0.217*** -0.0604*** -0.0424* 0.0273 -0.0863

(0.0578) (0.0127) (0.0229) (0.0205) (0.109)

Policy rate 0.257*** 0.106*** 0.187*** 0.0179 -0.317***

(0.0500) (0.0122) (0.0256) (0.0178) (0.0821)

Concentration -0.00608 -0.00219 0.0121*** 0.00636*** 0.0298

(0.00843) (0.00181) (0.00323) (0.00225) (0.0199)

Constant -33.12*** -9.138*** 8.031*** 8.395*** 176.6***

(7.000) (1.598) (2.306) (2.256) (20.51)
N 29488 29644 29430 29616 29398
rho 0.683 0.745 0.891 0.884 0.758
Source: Authors calculations
Notes: Standard errors in parentheses
*, **, and *** denote statistical significance at 10, 5, and 1 percent level, respectively.

INTERNATIONAL MONETARY FUND 58

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Is FinTech Eating the Bank’s Lunch?
Working Paper No. WP/2023/239