FinTech Adoption, Bank Profitability, and Stability: The Mediating Role of Operational Cost Efficiency in Bangladesh's Commercial Banking Sector

Shabab Sabiq and Progga Biswas Parama
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Shabab Sabiq: University of Barishal, Barishal, Bangladesh
Progga Biswas Parama: Eden Mohila College, University of Dhaka, Dhaka, Bangladesh

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Abstract: While financial technology (FinTech) is seen as a contributor to bank performance, the empirical evidence of digitization's ability to translate into improved profit and stability outcomes and efficiency gains, within emerging systems dominated by banks is not conclusive. The direct impact of a composite FinTech Adoption Index (FTI) on the profitability (ROE) and stability (ln(Z-score)) of Bangladesh's commercial banks is explored in this study along with whether operational cost efficiency (CIR) acts as a mediator. The study is conducted using a balanced panel of 30 commercial banks between 2015 and 2024, supplemented by an entropy-weighted index of FinTech as a robustness check, using a two-step System GMM to address dynamic persistence and endogeneity issues. The adoption of FinTech presents no significant relationship with profitability, stability or cost efficiency, while cost efficiency does not significantly transmit the effect of FinTech to either outcome. The alternative measure suggests that adoption is not only significantly negatively related to profitability, but is also associated with a significantly improved (not worse) cost-to-income ratio, which indicates the sensitivity to measurement rather than any one consistent effect on performance. These findings qualify the expected performance benefits of FinTech and have implications for investment sequencing and regulation of digital transformation in emerging banking markets.

Date: 2026-11
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