The Power of Fintech in the Profitability : A Study of Indian Banks

Abstract

In the era where digital innovation dictates the pace of financial services, the role of fintech investments in shaping bank profitability has never been more critical. This rapid rise has affected the operations of banks. This study investigates the relationship between fintech investment by banks and their financial performance over the years 2015-2023. Using panel data of 12 Nifty listed Indian scheduled commercial banks. Firstly, the fintech investment index is constructed by analyzing the frequency of certain keywords from the annual reports of the banks. Employing a systematic generalized method of moments (SGMM) the study tests the proposed relationship between fintech investment and bank profitability. The findings reveal a positive and significant impact of fintech investment on banks' profitability, indicating that greater fintech adoption by the banks enhances their profitability. This research addresses a relatively underexplored area of fintech integration in the banking sector, providing valuable insights into how internal fintech investments drive profitability. The study’s contribution enriches the existing fintech literature and is essential for informing future strategic directions, refining theoretical frameworks, and shaping policy in the fintech domain. Furthermore, it broadens understanding of digital transformation in banking by demonstrating how fintech investments are key to advancing banks’ digital evolution. With significant policy implications, this research suggests that policymakers support the growth of fintech investments within banking to foster financial inclusion, making financial services more accessible and affordable for underserved communities.