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

Abstract 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. Different from previous works, we first construct fintech industry development indices for fintech overall and then four subcategories by using fintech enterprise-level data and measure the relevant efficiency scores for Chinese banks under different ownership structures by applying the stochastic metafrontier approach. Our results show that state-owned commercial banks have the lowest cost efficiency and operate under inferior technology. When considering the influence of fintech development, we find that 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.