Does fintech innovation improve bank efficiency? Evidence from China's banking industry

This paper examines whether the development of the financial technology (fintech) industry affects cost efficiency and the technology adopted for China's banking industry over the period 2003-2017. Fintech industry development indices are constructed using fintech enterprise-level data, and these indices measure the development extent of entire fintech industry and four subindustries including (1) credit, deposit and capital-raising services, (2) payment, clearing and settlement services, (3) investment management services and (4) market support services. The relevant efficiency scores for Chinese banks under different ownership structures are measured by applying the stochastic metafrontier approach. The results show that state-owned commercial banks have the lowest cost efficiency and operate under inferior technology. When considering the influence of fintech development, fintech innovations not only improve the cost efficiency of banks, but also enhance the technology used by banks. This double beneficial effect is more significant in the case of market support service innovations.