The impact of financial technology on China’s banking industry: An application of the metafrontier cost Malmquist productivity index

Abstract

Abstract Technology advancements have increased the hopesof banks around the world in termsof securing a prominent place in global finance. The Chinese government explicitly regardsthe development of financial technology (Fintech) as an essential strategy forimprovingbanking performance. However, the debate on the impact of costly Fintech innovation on Chinese banking performance has notbeen resolved. This studytherefore applies thedata envelopment analysis(DEA) approach to define the metafrontier cost Malmquist productivity index ( CM M )under variable returns to scale(VRS)in order to analyze the factors and identify the sources of changes in cost-side productivity and their economic implications.The results show that the average CM M score was 1.0626, implying a 6.26% improvement in the cost Malmquist productivity during the study period. The resultsof implementing the system-GMM model also indicatethat the greater the banks’ share of mobile device transactions and the larger the banks’ third-party payment transactions volume, the higher the cost productivity growth rate.