Does digital finance aggravate bank competition? Evidence from China

The development of digital finance reshapes the competition pattern of banking. This paper uses a sample of 287 cities in China over the 2011-2019 period to analyze the effect of digital finance on bank competition. Results show that digital finance has a significant positive effect on bank competition, and it confirms the catfish effect of digital finance. The effects of coverage breadth of digital finance on bank competition is significantly positive, while the effect of digitization level index and usage depth index are not significant. This result is still valid after robustness tests. Estimation results of regional heterogeneity shows that digital finance has a significant positive effect on bank competition in the eastern and central region, and there is no effect of digital finance in the western region. The results of financial development level heterogeneity shows that digital finance creates a catfish effect in cities with developed traditional finance. Digital finance influences bank competition with deposit effect, loan effect and cooperation effect.