Is FinTech Eating the Bank's Lunch?

By Sami Ben Naceur, Bertrand Candelon, Selim A Elekdag, Drilona Emrullahu

November 17, 2023

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Sami Ben Naceur, Bertrand Candelon, Selim A Elekdag, and Drilona Emrullahu. Is FinTech Eating the Bank's Lunch?, (USA: International Monetary Fund, 2023) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper examines how the growing presence of FinTech firms affects the performance of traditional financial institutions. The findings point to a negative impact on profitability, primarily due to a reduction in interest income and a rise in operational costs. Although established financial institutions have tried to diversify their revenue streams, these efforts have proven inadequate to offset the losses associated with increased competition from FinTech firms. Our study also reveals that various FinTech business models, such as Peer-to-Peer (P2P) lending and Balance Sheet lending, have varying effects on financial institutions. Cooperative banks experience more significant profit deterioration under both models, whereas (larger) commercial banks appear to benefit from partnerships with P2P platforms, as evidenced by an increase in non-interest income. Furthermore, the findings suggest that FinTech presence has a disproportionately larger adverse effect on banks in countries with more competitive, profitable, and developed financial systems. Interestingly, however, traditional financial institutions in countries with stronger regulatory frameworks appear to benefit from the expanding influence of FinTech firms.

Subject: Commercial banks, Cooperative banks, Financial institutions, Financial statements, Fintech, Income, National accounts, Public financial management (PFM), Technology

Keywords: Annex II, Balance sheet lending, Bank profitability, Bank's lunch, Baseline estimation result, Business models, Caribbean, Commercial banks, Competition, Cooperative banks, Financial statements, Fintech, FinTech business models, Global, Income

Publication Details

Pages:

64
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/239
Stock No:

WPIEA2023239
ISBN:

9798400258107
ISSN:

1018-5941

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