FinTech development and commercial bank efficiency in China

The rapid development of financial technology (FinTech) is challenging the business of commercial banks. This research analyzes the impact mechanisms of FinTech on the efficiency of commercial banks in China, drawing from the principles of consumer theory, disruptive innovation theory, and technology spillover theory. We apply the DEA-Malmquist model to calculate the total factor productivity of 74 commercial banks from 2012 to 2019 and utilize the text mining method to construct the FinTech development index during the same period. Finally, this study investigates FinTech's effects on commercial bank efficiency in China through the dynamic panel-generalized model of moments. The results show the following. First, FinTech development reduces the commercial bank efficiency for the overall effect. Second, its development affects the debt side of commercial banks, which becomes less efficient because of the rising debt cost. Third, various types of commercial banks are impacted differently by FinTech; urban commercial and rural commercial banks are the most influenced by FinTech, while joint-stock banks are the least influenced. Fourth, regional commercial banks are impacted more by FinTech, with those in the east region more affected. The research conclusions offer theoretical and practical values for deepening the reform of commercial banks and for developing and applying FinTech.