FinTech Advancement in the Banking Industry: Is It Driving Efficiency?

ABSTRACT India's financial technology (FinTech) industry has experienced rapid growth in recent years. This has led to a greater emphasis on the connection between FinTech and cost efficiency. This research paper aims to investigate if banks with greater FinTech adoption exhibit greater cost efficiency and compare this Fintech influence on cost efficiency across various banks. To accomplish the research objectives, a novel Fintech index to measure FinTech innovation from both supply and demand perspectives is developed using data mining techniques and web crawler technology for Indian commercial banks. Further, to evaluate the relationship between Fintech and cost efficiency, efficiency scores are calculated using DEA (Data Envelopment Analysis) and the empirical analysis is conducted using a two‐step system GMM (Generalised Method of Moments). The study reveals a positive association between Fintech development and cost efficiency. The higher the level of Fintech adoption, the greater the cost efficiency observed in banks. Additionally, the impact of FinTech on cost efficiency varies based on bank characteristics, with private sector banks experiencing a more substantial effect than Public Sector Banks (PSBs) and small banks benefiting more than large banks. This study pioneers the development of a Fintech index for scheduled commercial banks in India, offering valuable insights into the impact of FinTech on cost efficiency within emerging economies.