FinTech and branch network expansion: evidence from China's banking industry

The rise of FinTech and branch transformation are two significant trends in the banking industry. This article collects 270 thousand data points on bank branches in China and constructs the online news-based FinTech index. Using data from 257 Chinese commercial banks from 2011 to 2022, our findings reveal: (1) FinTech adoption can significantly reduce the net growth rate of bank branches. This finding remains reliable after addressing endogeneity concerns, excluding the impact of special events, and performing other robustness tests. (2) The negative effect of FinTech on bank branch expansion is more pronounced among established, listed, and non-state-owned banks. (3) Banks are motivated to move from offline to online operations due to changing consumer preferences, fiercer market competition, and the cost-efficiency gains enabled by FinTech. (4) FinTech and branches are not in a zero-sum game. FinTech exerts a 'substitution effect' on lower-layer branches and branches in saturated markets, while it has a 'complementary effect' on higher-layer branches and branches in unsaturated markets. Moreover, FinTech has a 'complementary effect' on branches in remote and underdeveloped areas for large state-owned banks, but not for other types of banks. These findings offer crucial insights for advancing digital transformation in the banking industry.