Riding the FinTech innovation wave: FinTech, patents and bank performance

This research examines the impact of financial technology innovation on Chinese banks' performance, using both patent data and FinTech development index, by applying a generalized method of moments model to resolve potential endogeneity. While the results show that FinTech innovation reduces banks' profitability and asset quality in the aggregate, a finding more pronounced for large state-owned commercial banks, it improves banks' capital adequacy and management efficiency, though to a smaller degree for policy banks and state-owned commercial banks. Moreover, banks' own specific FinTech capabilities, measured by patent applications and claims, have similar effects on bank performance. The implications are that when facing the development of FinTech, banks should focus more on the rising capabilities of FinTech technology than its difficulties and what the competition is doing. Small banks can particularly achieve business process reengineering and innovation more reliably by actively cooperating with FinTech companies.