Financial technology and performance in Islamic and conventional banks

Abstract

Purpose This paper aims to examine the impact of financial technology (FinTech) startups on Islamic and conventional banking performance in Indonesia. Design/methodology/approach Data were collected from a sample of 124 conventional and Islamic banks in Indonesia from 2004 to 2018. The two-step generalized methods of moments was used to estimate the system model. Findings This study finds that FinTech startups have a detrimental effect on bank performance. This study also finds that Islamic banks have low performance compared to conventional banks. However, when FinTech startups interact with Islamic banks, this paper discovers that a greater number of FinTech startups have a positive effect on the performance of Islamic banks, particularly the peer-to-peer lending category. Additionally, this paper finds that FinTech startups improve Islamic banks' performance in both normal and crisis periods. Practical implications This paper provides recommendations for Islamic bank management and supervisors to deal with FinTech startups during normal and crisis periods by collaborating with FinTech startups and being willing to adopt cutting-edge financial technology applications. Originality/value This paper provides evidence of the impact of FinTech on the performance of Islamic banks, specifically on peer-to-peer lending and payment startup during the crisis and normal periods.