Evaluating the Impact of Fintech on Banks Profitability:

Abstract

The main objective of this research is to examine the impact of Fintech on the profitability of the banking sector in Egypt in the time frame from 2015 to 2022. The digital innovations and the integration of technology with the different fields led to asking how this could affect the banking sector's profitability, especially at that time frame as Egypt started to implement SDGs and put its vision to 2030. So, that's important for the research to determine how Egypt succeeded or not to apply Fintech and gain its profits from banks. To measure how the fintech is affected ,the research depended on the DIG score to measure fintech which is the measure of digital engagements of the banks through the annual reports as the score calculated in content analysis is the result of how the bank implements the technology innovations. Additionally, the bank's profitability that measured by the bank's return on assets to examine its relation with the fintech. In addition to the mediating role of operating efficiency that considered to be facilitated by fintech to achieve the improvement of bank profitability as it's the indicator of how the fintech impacts the cost of banks' operations. Moreover, the research considered the bank size as a moderating effect to enhance the level of developing fintech and bank profitability. The research depended on a sample of 16 Egyptian banks including 13 conventional banks and 3 Islamic banks. As for methodology the test used to determine the significance of the variables is the generalized method of moments (GMM). However, the results represented a significant and negative relation between the fintech and bank profitability due to the high cost of digitalization and the macroeconomic factors in Egypt. The results showed also the significant and positive impact of operating efficiency on the bank's profitability. On the other side, it's found that bank size has a significant but negative relationship as a moderating effect due to the decrease of bank deposits that affected banks' assets. Accordingly, it recommended to the policymakers in Egypt to facilitate more fintech innovations in the banking sector although the negative relation as it expected to achieve higher profitability in the future as that will boost the digital transformation to the people with high benefit to the banks in terms of profitability and attracting the foreign direct investors in the long term. The efficient structure theory and the agency theory support the findings. The Diffusion of Innovation Theory, the Technology Acceptance Model, the Market Power Theory, the Fundamental Theory, and the New Growth Theory, on the other hand, contradict the findings. However, it is anticipated that these theories will eventually support the findings in the long term with the positive correlation between fintech and bank profitability.