Fintech Innovation and Banking Stability: Evidence from a Developing Country

Abstract

Background: Technology has created many new financial services to help banks improve their competitiveness in customer service. Does technological innovation increase instability for banks? In addition, do we consider whether the impact of fintech innovation (FI) on banking stability (BS) varies with scale?

Objective: This study aimed to examine the role of Fintech Innovation (FI) in Banking Stability (BS) using quantile regression in a developing country.

Method: This study used the quantile regression method with a focus from  2012–2022. The quantile regression method is less sensitive to outliers, skewed distributions, and heterogeneity of the dependent variable. The results were presented in tables and charts for visual illustration.

Result: First, FI impacts BS negatively, and there are differences in this relationship across groups of banks with different capital sizes. This impact is also negative in the group of banks with large capital size, but it is not statistically significant for the groups of banks with low capital size. Second, the relationship between FI and different distributions of BS is different.

Conclusion: The relationship between FI and BS is different between different distributions of BS. This shows that if FI is not suitable, it can increase the instability of banking activities according to each bank's stability levels.

Unique contribution: The study provides empirical evidence on the trend of FI impact on BS in developing countries.

Key recommendation: The study proposes important policy implications for regulators in designing bank-specific strategies for technological development in the context of digitalization.