What's Your Bank's Fintech Score? Fintech Integration Transforms Banks from Costly Dealers Into Brokers

61 Pages Posted: 8 Jan 2021 Last revised: 11 Sep 2022

See all articles by Linda Allen

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Yu Shan

Syracuse University - Whitman School of Management

Yi Tang

Fordham University - Gabelli School of Business

Alev Yildirim

CUNY Queens College

Date Written: September 10, 2022

Abstract

Fintech firms mobilize information technology to provide intermediation services using a broker methodology, whereas dealer banks intermediate using leveraged balance sheets. The integration of Fintech into banking (either holistically or via mergers) may reduce the unit cost of intermediation by shifting the production function from dealer to broker. A "Fintech score" is derived using nonlinear and machine learning algorithms that show on-balance sheet lending for low Fintech score dealer banks versus securitization, brokered deposits, and non-interest income for high score, broker banks. Using Data Envelopment and Stochastic Cost Frontier Analyses, we find that banks with higher Fintech scores are more operationally efficient.

Keywords: Fintech, operational costs, broker, dealer, market making, match making

JEL Classification: G20, G21, G23, G24

Suggested Citation

Allen, Linda and Shan, Yu and Tang, Yi and Yildirim, Alev, What's Your Bank's Fintech Score? Fintech Integration Transforms Banks from Costly Dealers Into Brokers (September 10, 2022). Available at SSRN: https://ssrn.com/abstract=3703840 or http://dx.doi.org/10.2139/ssrn.3703840

Linda Allen (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States
646-312-3463 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://stern.nyu.edu/~lallen

Yu Shan

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Yi Tang

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
New York, NY 10023
United States

Alev Yildirim

CUNY Queens College ( email )

Flushing, NY 11367
United States

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