How Does Fintech Application Affect Commercial Banks

In recent years,the rapid development of fintech has affected the operation and management of commercial banks through the characteristics of open technology,scene,platform and data,and brought opportunities and challenges to the development of commercial banks.According to the report of the 19th National Congress of the CPC,China’s economy is now in a new normal of transition from high-speed growth to highquality growth,and how to promote high-quality economic development has become an important topic.In August 2019,the Central bank officially released the Fin Tech Development Plan(2019-2021),pointing out to strengthen strategic deployment,improve the level of Fin Tech,and realize the full integration of finance and technology.After years of evolution,fintech has accelerated its development,promoting the transformation of economic and social fields into intelligent areas.The banking industry is connected with all walks of life.Compared with the securities industry,insurance industry and other financial industries,the banking industry has a wider range of financial resources and customer resources,and generates a large number of information elements and data all the time.At present,the global trend is the deep integration of finance and technology.How to apply fintech in traditional finance such as banking industry and the impact of fintech application on the efficiency of banking business and risk taking are hot topics that need to be studied urgently to promote the application of emerging technology in other industries.Firstly,this paper constructs the fintech application index to investigate the impact of fintech application on the efficiency of commercial banks,and carries out heterogeneity analysis.The impact of fintech development on bank efficiency can be multi-channel.First,there is a broad consensus in the literature that financial innovation plays a crucial role in shaping banking activities and that the development of fintech can facilitate financial innovation,thereby affecting bank efficiency.Second,technological advances driven by fintech have changed the delivery channels of financial services,increased broader competition and led to volatility in banks’ operating performance.Third,the development of fintech has shaped the way banks conduct business,and the application of new technologies is expected to reduce costs for banks over time.Finally,technological advances have facilitated the development of new and more complex financial products.It is found that the application of fintech significantly improves the efficiency of commercial banks.At the same time,the scale of non-systematic banks is smaller than that of systematic banks.When the shock of fintech comes,non-systematic banks adjust faster.These characteristics enable nonsystematic banks to absorb fintech better than systematic banks.Secondly,based on the theoretical framework(Hauswald and Marquez,2006),this paper establishes the bank credit bidding game model under the information asymmetry environment,characterizes fintech as a kind of information technology,and further analyzes the fintech to bank credit by solving the bidding game equilibrium The influence of loan interest rate and credit profit,and deduce the inference to be tested:(1)Fintech facilitates bank lending through information efficiency mechanisms;(2)Fintech widens the information gap between the two banks,strengthens the market power of the banks with technology,and raises the loan interest rate they demand from customers through the market power mechanism;(3)Based on the above two logical mechanisms,fintech promotes banks to obtain higher profit of credit business.Empirical aspects: On the one hand,based on the text of annual reports and financial data of listed banks from 2010 to 2018,this paper uses text analysis method to construct indicators representing the development degree of fintech;On the other hand,“the digital transformation index of Peking University Commercial Bank” is used to measure the development level of fintech.Then the age of bank chairman is selected as the instrumental variable of the fintech index to systematically test the inference and logical mechanism of the theoretical model.It is found that from the sample of this paper,the development of banks’ fintech level from the lowest to the highest will significantly drive the expansion of credit supply,increase of loan interest rate and increase of credit profit rate.Information efficiency and market power are important mechanisms.Based on the regression of instrumental variables,this paper deals with the endogeneity of the bank’s development of fintech,carries out robustness test by replacing core explanatory variables and adding control variables,and tests the connotation of fintech of core indicators.The policy implication is that the integration of fintech and banking development is conducive to the expansion of credit scale and the improvement of information efficiency,and can provide new drivers for the highquality development of the banking industry,which provides a theoretical basis for the further development of fintech and the promotion of high-quality economic development.At the same time,we should also pay attention to the interest rate raising effect of fintech.In the future,by encouraging technological competition among banks,we will promote the incremental expansion,expansion,cost reduction and quality assurance of inclusive finance,so that financial services will benefit people’s livelihood more.Thirdly,this paper,on the one hand,examines the impact of banks’ own application of fintech technology on banks’ risk taking,uses the text of annual reports and financial data of listed banks from 2010 to 2018,and uses text analysis method to construct indicators that represent the development degree of fintech,It is found that the application of fintech can improve the risk tolerance of commercial banks and significantly reduce the risk level.On the other hand,from the perspective of Internet deposit,the risk taking of cooperation between banks and fintech platforms is further studied.This article compiled domestic listed Banks from 2012 to 2020 of annual and semi-annual credit data,and consider the credit risk of industries,with the help of Internet deposit online event in 2018,in cooperation with financial technology platform deposit-taking Banks as treatment group,the cooperative bank as the control group,to build dual difference model,based on the Internet account This paper empirically analyzes the impact and internal mechanism of the cooperation between banks and fintech platforms on banks’ risk taking,and excludes the impact of the new regulations and policies on capital management,The results show that :(1)the cooperation between banks and fintech platforms significantly improves the risk-taking level of commercial banks,which is reflected in the increase of the proportion of weighted risk assets and the credit allocation of high-risk industries;(2)Mechanism studies show that the cooperation between banks and fintech platforms significantly promotes the expansion of various deposits and savings deposits of commercial banks,with better liquidity and lower risk,which may lead to higher risk taking level of banks,The reason is that banks have sufficient capital liquidity,which may stimulate the risk-taking tendency of banks,engage in loan activities in some high-risk industries,and then improve their own risk bearing level;(3)The credit allocation of high-risk industries by small banks is significantly improved after cooperation with fintech platforms;(4)Event studies based on stock prices show that the statements of regulatory authorities on Internet deposits have a significant governance effect.Finally,this paper summarizes the impact of fintech application on efficient credit business and risk taking of commercial banks,and puts forward policy suggestions from the national level and the government level as well as the bank level.In view of the findings,this paper proposes that on the one hand,the government should formulate effective policies for fintech,and standardize supervision,and actively guide the rational and healthy development of fintech;On the other hand,commercial banks should formulate effective measures from multiple aspects,seize the tide of fintech,strive to improve their own technical level,and actively respond to the impact of fintech.Innovations and the main contribution of this article is:(1)Research perspective innovation.Firstly,the author combing existing literature,the existing research mainly from the theoretical research of financial technology,less focus on financial technology application specific how to affect the commercial Banks,less based on the research of Chinese background,this article made up for the shortage,expand the financial science and technology literature with the bank;Secondly,the development of fintech in China is relatively short,and the current academic discussion mainly stays in the stage of Internet finance,ignoring the impact of artificial intelligence and other low-level emerging technologies on the banking industry;Thirdly,Philippon(2015)found that the application of technology in the financial industry did not reduce intermediary costs.This paper provides a possible explanation that technology could strengthen the market power of banks,but lead to the increase of loan interest rates;Finally,this study finds that fintech improves the efficiency of banks and promotes credit expansion,which provides a theoretical basis for further strengthening the integration of fintech and industrial development and facilitating high-quality economic development.(2)Innovation of research methods.Different from previous studies that mainly use theoretical description,this paper not only conducts theoretical analysis on the impact of technology on the banking industry,but also conducts empirical analysis with specific bank data,and comprehensively uses two research methods to conduct scientific discussion on the research object.In the theoretical analysis part,this paper draws on the theoretical framework of Hauswald and Marquez(2006)to construct a game model of bank credit bidding in the context of information asymmetry,and characterizes fintech as an information technology.In the empirical analysis part,text analysis method is used to construct the index representing the application degree of fintech at the individual level of banks based on the text of annual reports and financial data of listed banks from 2010 to 2018,and three inferences and two logical mechanisms of the theoretical model are verified.At the same time,this paper also empirically discusses the impact of fintech on the efficient credit business and risk taking of the banking industry,and verifies the conclusions of the model.(3)Innovation of index system.Due to the late start of fintech in China,there are few researches on fintech.At present,there are few researches on constructing indicators to measure the development degree of fintech in China.First of all,when measuring the development degree of fintech in China,this paper builds the fintech application index in China by referring to the existing literature research methods and combining the text mining method.Secondly,this paper uses the Digital Transformation Index of Commercial banks of Peking University to describe the degree of fintech application of commercial banks.Finally,this paper studies the impact of fintech application on the risk taking of commercial banks and the impact of fintech application on the risk taking of commercial banks from the perspective of Internet deposit using the differential difference model.