Effects of Fintech Firms on Banking Profitability in ASEAN-5 during the Pandemic COVID-19
Main Article Content
Abstract
Fintech and fintech businesses have advanced banking and finance innovation. Since COVID-19 in 2020, fintech has accelerated the adoption of digital technology in banks to help individual and business customers during the crisis and the new normal. This research seeks to assess the correlations among fintech firms (FIN) and bank performance metrics, specifically Return on Total Assets (ROA) and Return on Equity (ROE), alongside bank attributes, i.e., Total Assets (SIZE), Leverage (LEV), Loans (LOAN), Deposits (DEPO) and Scale (SCA). Additionally, it investigates the influence of FIN on these essential bank profitability indicators in conjunction with macroeconomic variables, including GDP, Consumer Price Index (INF) and the occurrence of COVID-19. Based on consumer and disruptive innovation theories, dataset including 57 banks from Indonesia, Thailand, Malaysia, the Philippines and Vietnam from 2017 to 2021, the study used the dynamic panel model with the two-step Generalised Method of Moments (GMM) estimator, to demonstrate that fintech firms negatively affected bank profitability across ASEAN countries. Fintech hurts small banks more than large banks, and COVID-19 exacerbated its negative impact on ASEAN-5 bank profitability.
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Aaker, D. A., & Keller, K. L. (1990). Consumer evaluations of brand extensions. Journal of Marketing, 54(1), 27–41. https://doi.org/10.1177/002224299005400102
Abdelsalam, M. K., & Sajid, H. (2023). Systemic risk and tail risk of fintech firms during COVID 19: A case of southeast asian economy. The Asian Bulletin of Contemporary Issues in Economics and Finance, 3(1), 33–45. https://doi.org/10.62019/abcief.v3i1.35
Agarwal, S., & Zhang, J. (2020). FinTech, lending and payment innovation: A review. Asia-Pacific Journal of Financial Studies, 49(3), 353–367. https://doi.org/10.1111/ajfs.12294
Agboola, M. G., Awobajo, K. A., Oluwatobi, S. O., Akinbode, M. O., Fagbohun, M. O., Esse, U. C., Segun-Adeniran, C. D., Asaolu, A. O., & Betek, C. M. (2019). Effect of digitalization on the performance of commercial banks in Nigeria. IOP Conference Series: Earth and Environmental Science, 331(1), 18. https://doi.org/10.1088/1755-1315/331/1/012014
Al-Matari, E. M., Mgammal, M. H., Alosaimi, M. H., Alruwaili, T. F., & Al-Bogami, S. (2022). Fintech, board of directors and corporate performance in Saudi Arabia financial sector: Empirical study. Sustainability, 14(17), 1–23. https://doi.org/10.3390/su141710750
Almulla, D., & Aljughaiman, A. A. (2021). Does financial technology matter? Evidence from an alternative banking system. Cogent Economics & Finance, 9(1), 1–21. https://doi.org/10.1080/23322039.2021.1934978
Anagnostopoulos, I. (2018). Fintech and regtech: Impact on regulators and banks. Journal of Economics and Business, 100, 7–25. https://doi.org/10.1016/j.jeconbus.2018.07.003
Arnaut, D., & Bećirović, D. (2023). FinTech innovations as disruptor of the traditional financial industry. In S. Benković, A. Labus, & M. Milosavljević (Eds.), Digital transformation of the financial industry: approaches and applications (pp. 233–254). Springer International Publishing. https://doi.org/10.1007/978-3-031-23269-5
Arner, A., Arner, D. W., Barberis, J., & Buckley, R. P. (2015). The evolution of FinTech: A new post-crisis paradigm? UNSW Law Research Paper No. 2016-62, Hong Kong, 1–45. http://hdl.handle.net/10722/221450
Asmarani, S. C., & Wijaya, C. (2020). Effects of fintech on stock return: Evidence from retail banks listed in Indonesia stock exchange. The Journal of Asian Finance, Economics and Business, 7(7), 95–104. https://doi.org/10.13106/jafeb.2020.vol7.no7.095
Banna, H., & Alam, M. R. (2021). Impact of digital financial inclusion on ASEAN banking stability: Implications for the post-COVID-19 era. Studies in Economics and Finance, 38(2), 504–523. https://doi.org/10.1108/SEF-09-2020-0388
Bao, Z., & Huang, D. (2021). Shadow banking in a crisis: Evidence from Fintech during COVID-19. Journal of Financial and Quantitative Analysis, 56(7), 2320–2355. https://doi.org/10.1017/S0022109021000430
Berger, A. N. (1995). The relationship between capital and earnings in banking. Journal of Money, Credit and Banking, 27(2), 432–456. https://doi.org/10.2307/2077877
Brodsky, L., & Oakes, L. (2017). Data sharing and open banking. https://www.mckinsey.com/~/media/McKinsey/Industries/Financial Services/Our Insights/Data sharing and open banking/Data-sharing-and-open-banking.pdf
Buchak, G., Matvos, G., Piskorski, T., & Seru, A. (2018). Fintech, regulatory arbitrage, and the rise of shadow banks. Journal of Financial Economics, 130(3), 453–483. https://doi.org/10.1016/j.jfineco.2018.03.011
Candy, C., Robin, R., Sativa, E., Septiana, S., Can, H., & Alice, A. (2022). Fintech in the time of COVID-19: Conceptual Overview. Jurnal Akuntansi, Keuangan, dan Manajemen, 3(3), 253–262. https://doi.org/10.35912/jakman.v3i3.1115
Carbó‐Valverde, S., Cuadros‐Solas, P. J., & Rodríguez‐Fernández, F. (2020). The effect of banks’ IT investments on the digitalization of their customers. Global Policy, 11(S1), 9–17. https://doi.org/10.1111/1758-5899.12749
Cheng, M., & Qu, Y. (2020). Does bank FinTech reduce credit risk? Evidence from China. Pacific-Basin Finance Journal, 63, 1–24. https://doi.org/10.1016/j.pacfin.2020.101398
Christensen, C. M. (1997). The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business School Press.
Cornelli, G., Frost, J., Gambacorta, L., Rau, R., Wardrop, R., & Ziegler, T. (2020). Fintech and Big Tech credit: A new database. SSRN, 887.
Demirgüç-Kunt, A., Pedraza, A., & Ruiz-Ortega, C. (2021). Banking sector performance during the COVID-19 crisis. Journal of Banking & Finance, 133, 106305. https://doi.org/10.1016/j.jbankfin.2021.106305
Dwivedi, P., Alabdooli, J. I., & Dwivedi, R. (2021). Role of FinTech adoption for competitiveness and performance of the bank: A study of banking industry in UAE. International Journal of Global Business and Competitiveness, 16(2), 130–138. https://doi.org/10.1007/s42943-021-00033-9
Effendi, K. A., & Widajatun, V. W. (2024). Growth of Islamic Fintech in Indonesia. JEFMS Journal, 7(6), 3620-3631. https://doi.org/10.47191/jefms/v7-i6-53
Elsaid, H. M. (2023). A review of literature directions regarding the impact of fintech firms on the banking industry. Qualitative Research in Financial Markets, 15(5), 693–711. https://doi.org/10.1108/QRFM-10-2020-0197
Fidhayanti, D., Mohd Noh, M. S., Ramadhita, R., & Bachri, S. (2024). Exploring The legal landscape of Islamic Fintech in Indonesia: A comprehensive analysis of policies and regulations. F1000Research, 13, 21. https://doi.org/10.12688/f1000research.143476.2
Fu, J., & Mishra, M. (2022). Fintech in the time of COVID-19: Technological adoption during crises. Journal of Financial Intermediation, 50, 100945. https://doi.org/10.1016/j.jfi.2021.100945
Gomber, P., Koch, J. A., & Siering, M. (2017). Digital finance and FinTech: Current research and future research directions. Journal of Business Economics, 87(5), 537–580. https://doi.org/10.1007/s11573-017-0852-x
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics. Douglas Reiner, McGraw-Hill/Irwin.
Haddad, C., & Hornuf, L. (2019). The emergence of the global fintech market: Economic and technological determinants. Small Business Economics, 53(1), 81–105. https://doi.org/10.1007/s11187-018-9991-x
Haller, S. A., & Siedschlag, I. (2011). Determinants of ICT adoption: Evidence from firm-level data. Applied Economics, 43(26), 3775–3788. https://doi.org/10.1080/00036841003724411
Iman, N. (2019). Traditional banks against fintech startups: A field investigation of a regional bank in Indonesia. Banks and Bank Systems, 14(3), 20–33. https://doi.org/10.21511/bbs.14(3).2019.03
Jagtiani, J., & Lemieux, C. (2018). Do fintech lenders penetrate areas that are underserved by traditional banks? Journal of Economics and Business, 100, 43–54. https://doi.org/10.1016/j.jeconbus.2018.03.001
Jose, K. J. (2020). Revamping finance via Fintech : Promises, perils, and practices in ASEAN. Foreign Policy Review, 13, 129–144. https://doi.org/10.47706/KKIFPR.2020.13.129-144
Ky, S., Rugemintwari, C., & Sauviat, A. (2019). Is Fintech good for bank performance? The case of mobile money in the East African community. SSRN Electronic Journal, 1–39. https://doi.org/10.2139/ssrn.3401930
Lai, K. P. Y. (2020). FinTech: The dis/re-intermediation of finance? In The Routledge Handbook of Financial Geography. (1st ed., Issue April, pp. 440–458). Routledge. https://durham-repository.worktribe.com/output/1654554
Lee, C. C., Li, X., Yu, C. H., & Zhao, J. (2021). Does fintech innovation improve bank efficiency? Evidence from China’s banking industry. International Review of Economics and Finance, 74, 468–483. https://doi.org/10.1016/j.iref.2021.03.009
Lee, I., & Shin, Y. J. (2018). Fintech: Ecosystem, business models, investment decisions, and challenges. Business Horizons, 61(1), 35–46. https://doi.org/10.1016/j.bushor.2017.09.003
Li, J., Li, J., Zhu, X., Yao, Y., & Casu, B. (2020). Risk spillovers between FinTech and traditional financial institutions: Evidence from the U.S. International Review of Financial Analysis, 71, 1–13. https://doi.org/10.1016/j.irfa.2020.101544
Liem, N. T., Son, T. H., Tin, H. H., & Canh, N. T. (2022). Fintech credit, credit information sharing and bank stability: some international evidence. Cogent Business & Management, 9(1). https://doi.org/10.1080/23311975.2022.2112527
Lin, C.-Y. (2022). Exploring the spatialities of institutional entrepreneurship in Taipei’s FinTech industry. Regional Studies, 56(11), 1801–1813. https://doi.org/10.1080/00343404.2021.2018131
Lozano-Vivas, A., & Pasiouras, F. (2010). The impact of non-traditional activities on the estimation of bank efficiency: International evidence. Journal of Banking & Finance, 34(7), 1436–1449. https://doi.org/10.1016/j.jbankfin.2010.01.006
Maryunita, L., & Nugroho, I. T. (2022). Fintech innovation and bank efficiency in Indonesia. Khazanah Sosial, 4(4), 626–635. https://doi.org/10.15575/ks.v4i4.20239
Miklaszewska, E., Kil, K., & Idzik, M. (2021). How the COVID-19 pandemic affects bank risks and returns: Evidence from EU members in Central, Eastern, and Northern Europe. Risks, 9(10), 180. https://doi.org/10.3390/risks9100180
Milian, E. Z., Spinola, M. de M., & Carvalho, M. M. de. (2019). Fintechs: A literature review and research agenda. Electronic Commerce Research and Applications, 34, 1–21. https://doi.org/10.1016/j.elerap.2019.100833
Mittal, P., & Singh, R. I. (2025). Changing landscape of financial inclusion through FinTech: A systematic literature review. Paradigm: A Management Research Journal, 29(1), 27–43. https://doi.org/10.1177/09718907241286957
Morgan, P. J. (2022). Fintech and financial inclusion in Southeast Asia and India. Asian Economic Policy Review, 17(2), 183–208. https://doi.org/10.1111/aepr.12379
Mustapha, S. (2018). E-payment technology effect on bank performance in emerging economies: Evidence from Nigeria. Journal of Open Innovation: Technology, Market, and Complexity, 43(4), 1–14. https://doi.org/10.3390/joitmc4040043
Nguyen, L., Tran, S., & Ho, T. (2022). Fintech credit, bank regulations and bank performance: A cross-country analysis. Asia-Pacific Journal of Business Administration, 14(4), 445–466. https://doi.org/10.1108/APJBA-05-2021-0196
Nurkhin, A., Mukhibad, H., Rohman, A., & Wolor, C. W. (2024). The impact of good corporate governance and financial technology innovation on Indonesian bank financial performance. Jurnal Dinamika Akuntansi, 16(2), 215–231. https://doi.org/10.15294/jda.v16i2.10599
Pham, T. P., Popesko, B., Quddus, A., Hussain, S., & Tran, T. B. (2021). Do Fintech-related keywords influence bank return? A case study from Vietcombank and Sacombank in Vietnam. SCMS Journal of Indian Management, 18(4), 5–14. https://www.scms.edu.in/past_issues/article?journal_id=81
Phan, D. H. B., Narayan, P. K., Rahman, R. E., & Hutabarat, A. R. (2020). Do financial technology firms influence bank performance? Pacific-Basin Finance Journal, 62, 1–13. https://doi.org/10.1016/j.pacfin.2019.101210
Pu, R., Teresiene, D., Pieczulis, I., Kong, J., & Yue, X.-G. (2021). The interaction between banking sector and financial technology companies: Qualitative assessment: A case of Lithuania. Risks, 9(1), 1–22. https://doi.org/10.3390/risks9010021
Puschmann, T. (2017). Fintech. Business & Information Systems Engineering, 59(1), 69–76. https://doi.org/10.1007/s12599-017-0464-6
Riaz, M., Mehmood, A., Shabbir, U., & Kazmi, S. M. A. (2023). Social interactions leading role in adopting the Fintech: A case of banking sector. Pakistan Journal of Humanities and Social Sciences, 11(2), 1467–1476. https://doi.org/10.52131/pjhss.2023.1102.0449
Rohman, A., & Nurkhin, A. (2023). What factors determine banking profitability in Indonesia during the COVID-19 pandemic? Accounting Analysis Journal, 11(3), 167–175. https://doi.org/10.15294/aaj.v11i3.64673
Safiullah, M., & Paramati, S. R. (2024). The impact of FinTech firms on bank financial stability. Electronic Commerce Research, 24, 453–475. https://doi.org/10.1007/s10660-022-09595-z
Sapulette, M. S., Effendi, N., & Santoso, T. (2022). Fintech, banks, and the COVID-19 pandemic: Evidence from Indonesia. Buletin Ekonomi Moneter Dan Perbankan, 24(4), 559–588. https://doi.org/10.21098/bemp.v24i4.1470
Schellhase, J., & Garcia, A. (2019). FinTech in the Philippines: Assessing the state of play. Milken Institute. https://milkeninstitute.org/sites/default/files/reportspdf/FinTech-in-the-Philippines-Update%20(1)_0.pdf
Scott, S. V., Van Reenen, J., & Zachariadis, M. (2017). The long-term effect of digital innovation on bank performance: An empirical study of SWIFT adoption in financial services. Research Policy, 46(5), 984–1004. https://doi.org/10.1016/j.respol.2017.03.010
Setiawan, B., Nugraha, D. P., Irawan, A., Nathan, R. J., & Zoltan, Z. (2021). User innovativeness and fintech adoption in Indonesia. Journal of Open Innovation: Technology, Market, and Complexity, 7(3), 188. https://doi.org/10.3390/joitmc7030188
Shi, C., & Lu, J. (2024). Unlocking economic resilience: A new methodological approach and empirical examination under digital transformation. Land, 13(5), 621. https://doi.org/10.3390/land13050621
Suprun, A., Petrishina, T., & Vasylchuk, I. (2020). Competition and cooperation between fintech companies and traditional financial institutions. E3S Web of Conferences, 166, 13028. https://doi.org/10.1051/e3sconf/202016613028
Stulz, R. M. (2019). FinTech, BigTech, and the future of banks. Journal of Applied Corporate Finance, 31(4), 86–97. https://doi.org/10.1111/jacf.12378
Thakor, A. V. (2020). Fintech and banking: What do we know? Journal of Financial Intermediation, 41, 1–13. https://doi.org/10.1016/j.jfi.2019.100833
UOB. (2020). FinTech in ASEAN: The next wave of growth. https://thefinlab.com/wp-content/uploads/2020/01/UOB-The-Next-Wave-of-Growth-2018-White-Paper.pdf
UOB. (2022). Fintech in Asean 2021: Digital takes flight. https://singaporefintech.org/download/162247/
Van Loo, R. (2018). Making innovation more competitive: The case of fintech. UCLA Law Review, 65(1), 232–279. https://ssrn.com/abstract=2966890
Varma, P., & Nijjer, S. (2022). Examining the role of Fintech in the future of retail banking. ECS Transactions, 107(1), 9855–9872. https://doi.org/10.1149/10701.9855ecst
Vives, X. (2017). The impact of fintech on the banking industry. European Economy, 2, 97–105. https://blog.iese.edu/xvives/files/2018/02/EE_2.2017.pdf#page=99
Wang, Y., Xiuping, S., & Zhang, Q. (2021). Can fintech improve the efficiency of commercial banks? An analysis based on big data. Research in International Business and Finance, 55, 1–9. https://doi.org/10.1016/j.ribaf.2020.101338
Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126(1), 25–51. https://doi.org/10.1016/j.jeconom.2004.02.005
Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. The MIT Press.
Wu, A.-C., & Kao, D.-D. (2022). Mapping the sustainable human-resource challenges in Southeast Asia’s fintech sector. Journal of Risk and Financial Management, 15(7), 307. https://doi.org/10.3390/jrfm15070307
Xiazi, X., & Shabir, M. (2022). Coronavirus pandemic impact on bank performance. Frontiers in Psychology, 13, 1–14. https://doi.org/10.3389/fpsyg.2022.1014009
Yang, T., & Zhang, X. (2022). FinTech adoption and financial inclusion: Evidence from household consumption in China. Journal of Banking & Finance, 145, 106668. https://doi.org/10.1016/j.jbankfin.2022.106668
Yuspita, R., Pebruary, S., & Kamala, A. Z. H. (2019). The society’s perceptions on the use of fintech services in sharia financial institutions. Jurnal Ekonomi & Keuangan Islam, 5(2), 87–92. https://doi.org/10.20885/jeki.vol5.iss2.art6
Yussof, S. A., & Al-Harthy, A. M. H. (2020). Cryptocurrency as an alternative currency in Malaysia: Issues and challenges. ICR Journal, 9(1), 48–65. https://doi.org/10.52282/icr.v9i1.137
Zhao, J., Li, X., Yu, C.-H., Chen, S., & Lee, C.-C. (2022a). Riding the FinTech innovation wave: FinTech, patents and bank performance. Journal of International Money and Finance, 122, 102552. https://doi.org/10.1016/j.jimonfin.2021.102552
Zhao, Y., Goodell, J. W., Dong, Q., Wang, Y., & Abedin, M. Z. (2022b). Overcoming spatial stratification of fintech inclusion: Inferences from across Chinese provinces to guide policy makers. International Review of Financial Analysis, 84, 102411. https://doi.org/10.1016/j.irfa.2022.102411
Zhang, D., Hu, M., & Ji, Q. (2020). Financial markets under the global pandemic of COVID-19. Finance Research Letters, 36, 101528. https://doi.org/10.1016/j.frl.2020.101528
Zheng, A. H. Y., Ab-Rahim, R., & Jing, A. H. Y. (2022). Examining the Fintech ecosystem of ASEAN-6 countries. Asia-Pacific Social Science Review, 22(2), 1–13. https://doi.org/10.59588/2350-8329.1417