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The Impact of FinTech on the Performance of Indian Banks: Investigating the Presence of Clusters Across Indian Bank Characteristics

Parminder Varma ^a

Shivinder Nijjer ^b

Kiran Sood ^c,d,e

Simon Grima ^e

^{^a}Sharekhan by BNP PARIBAS, India

^{^b}Birla Institute of Management Technology, India

^{^c}Chitkara Business School, Chitkara University, India

^{^d}Women Researchers Council (WRC), Azerbaijan State University of Economics (UNEC), Azerbaijan

^{^e}University of Malta, Malta

Finance Analytics in Business

ISBN: 978-1-83753-573-6, eISBN: 978-1-83753-572-9

Publication date: 17 June 2024

Abstract

Purpose

Banks play a vital role in the economy. Investigating their competitive environment is crucial to ensuring economic stability and development. The FinTech disruption has risks and opportunities for incumbent banks, and it can be valuable to investigate its effects on banking performance. Therefore, the aim of this study is to assess whether investment in FinTech is associated with better performance of Indian banks during 2012–2018.

Methodology

To do this, a sample of Indian banks was investigated between 2012 and 2018 using k-means and hierarchical cluster analysis, ANOVA, and pairwise comparison tests.

Findings

Results of the analysis strongly suggest that investment in FinTech is associated with better banking performance. Higher FinTech investments, represented by mobile transaction volume, are associated with higher efficiency scores and accounting-based performance. In particular, banks that invest in FinTech and have relatively low non-performing loans have a 7.7% higher Return on Employment (ROE) than banks with exceptionally low FinTech use and no significant investment in smart branches.

Practical Implications

Therefore, it can be recommended that Indian banks adopt a forward-looking strategic approach when making investment decisions regarding new technologies. Failing to adapt to the FinTech disruption may result in poor value creation prospects in the long run.

Originality

To the best of the authors' knowledge, this is the first study that analyses. We are not aware of any similar study on whether investment in FinTech is associated with better performance of the Indian banks during 2012–2018.

Keywords

Citation

Varma, P., Nijjer, S., Sood, K. and Grima, S. (2024), "The Impact of FinTech on the Performance of Indian Banks: Investigating the Presence of Clusters Across Indian Bank Characteristics", Taneja, S., Kumar, P., Sood, K., Özen, E. and Grima, S. (Ed.) Finance Analytics in Business (Emerald Studies in Finance, Insurance, and Risk Management), Emerald Publishing Limited, Leeds, pp. 93-124. https://doi.org/10.1108/978-1-83753-572-920241005

Publisher

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Emerald Publishing Limited