The dark side of bank FinTech: Evidence from a transition economy

Using data from Chinese commercial banks from 2008 to 2018, this paper explores the effects of bank FinTech on stability (i.e., bank stability). We first construct and measure a bank Fintech index and then examine the relation between bank FinTech and stability. We argue that bank FinTech affects stability from two aspects: bright effects and dark effects. The results show that the dark effects prevail over bright effects, that is, bank FinTech decreases bank stability. Specifically, a one-standard-deviation increase in bank FinTech is associated with a 14.2 % reduction in bank stability. Our results also show that bank FinTech increases stability by improving risk control and increasing net interest margin (i.e., bright effects), whereas bank FinTech increases non-interest activities, and thus reduces stability (i.e., dark effects). Second, the negative impacts of bank Fintech on stability are weaker in state-owned banks. Third, as time progresses, the negative effects of bank Fintech become weaker. Finally, when we examine five subareas of bank FinTech, we find that artificial intelligence technology and big data technology increase bank stability, but internet technology reduces bank stability. Our main results pass a series of robustness tests and endogeneity issues.