Tochukwu Timothy Okoli

The speed of financial technology (Fintech) adoption in delivering financial services has raised concerns among researchers on the future of traditional banks, especially as authors believe that Fintech comes with both prospects and problems. This study therefore aims to examine the growth, measurements, and the impact of Fintech on traditional banks in a panel of sixteen African countries for the period 1800–2020. These periods were divided into three phases: the analogue (1800–1967), the digital (1967–2008), and the modern phases (2008–2020). The autoregressive distributed lag (ARDL) and descriptive analyses methods were used to investigate the study’s objectives. It found that the analogue era witnessed the birth of Fintech ideas, while the digital era witnessed structural changes within the financial system. Results from the pooled mean group ARDL estimation technique based on the third/modern era reveal that, on average, a unit increase in Fintech adoption significantly reduces bank profitability (ROA) by 12.6%. Hence, although early Fintech adoption poses no threat to bank profitability; however, beyond certain threshold, its continuous adoption reduces profitability. Again, the speed of adjustment at 90.9% per annum is an indication that short-run Fintech disruptive impact/disequilibrium is corrected within one year and one month. The Principal Component Analysis used to generate Fintech index shows that African Fintech’s operation is more susceptible to changes in mobile banking. The study concludes that too much Fintech adoption is unhealthy for traditional banks in Africa and therefore it recommends that Fintech should collaborate with banks to correct for its disruptive impacts.

Many researchers attribute the vulnerability of African banks to poor innovation and technology adoption in the continent. While many studies suggest that Fintech adoption can mitigate instabilities/risks, this study argues that adopting Fintech brings both challenges and opportunities. Consequently, the study examines a monotonic connection between Fintech and bank stability in a panel of 26 African economies from 2004 to 2021. After measuring bank stability with the bank Z-score, the Principal Component Analysis (PCA) was employed to generate an index of Fintech using various digital payment indicators. The results of the System Generalized Method of Moments (GMM) technique reveal that the relationship is U-shaped in the short run but monotonic in the long run with greater magnitude. Hence, an oscillatory divergent relationship was implied for the entire period. That is, Fintech improves and worsens bank stability intermittently over time. The result is still valid with the inclusion of bank-specific and macroeconomic variables but it was improved with the inclusion of institutional variables in the model. Furthermore, the U-test analysis employed as a second-order robustness check for the U-shaped relationship confirms that Fintech adoption will first worsen bank stability before improving it. The study concludes that Fintech’s ability to improve bank stability depends on the extent and quality of institutional development/regulations in the region. The study therefore recommends institutional development and Fintech regulation to guarantee steady financial/bank stability through Fintech adoption.