Journal of Quality Engineering and Management

Abstract Purpose: Traditional banking needs new FinTech innovations and technologies to improve its processes and services. FinTech innovations have led to significant changes in the banking system, including advancements in risk management. Therefore, the present study aimed to investigate and analyze the heterogeneity and the mechanism underlying the effect of FinTech innovation on the risk-taking of commercial banks using balanced panel data from 20 banks for the period 2013-2022.
Methodology: Based on web technology, an indicator at the bank level is considered, including the creation, annual number, and frequency of news related to fintech innovation from each bank. This indicator is calculated as the ratio of the value of online shopping and bill payments made through the Internet and mobile devices to GDP. To address potential endogeneity issues, including measurement errors and omitted variables, the methods of Instrumental Variables (IV) and Difference-in-Differences (DID) were employed to test the hypothesis and obtain consistent estimates.
Findings: Showed that improvement in FinTech bank innovation significantly reduces risk-taking. The results of the mechanism analysis indicate that a bank's FinTech innovation reduces its risk-taking through two channels: increasing operating income and enhancing the capital adequacy ratio. The analysis of the heterogeneity of bank size, bank type, and competitiveness shows that larger, public, private, and highly competitive commercial banks have a more pronounced effect on reducing risk-taking in the development of technological innovation. Also, robustness and stability tests, including changing the methods used to construct the FinTech innovation index, replacing risk-taking indicators, and reducing the change in the study sample, showed that the findings remained unchanged.
Originality/Value: The banking system should adopt a development model aligned with the era and utilize FinTech solutions to accelerate its digital transformation. Finally, since the use of FinTech by commercial banks presents certain potential risks, banks should enhance their risk management. Implement applicable supervisory measures, such as information disclosure standards and risk management indicators.