Cutting Operational Costs by Integrating Fintech into Traditional Banking Firms

46 Pages Posted: 8 Jan 2021

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

Concordia University - John Molson School of Business

Yi Tang

Fordham University - Gabelli School of Business

Alev Yildirim

Southern Connecticut State University

Date Written: November 14, 2020

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 may reduce the unit cost of intermediation by shifting the production function from dealer to broker. Identifying commonalities in the financial structures of Fintech-adopting banks, we develop the "Fintech score." Analysis of on-balance sheet lending, securitization, brokered deposits and non-interest income demonstrates that more broker-like (dealer-like) banks have high (low) Fintech scores. Using Data Envelopment and Stochastic Cost Frontier Analyses, banks with higher Fintech scores are more operationally efficient and resilient in crises.

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, Cutting Operational Costs by Integrating Fintech into Traditional Banking Firms (November 14, 2020). 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

Concordia University - John Molson School of Business ( email )

1450 Guy Street, MB 12.217
Montreal, Quebec H3H 0A1
Canada
(514) 848-2424 (Phone)

Yi Tang

Fordham University - Gabelli School of Business ( email )

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

Alev Yildirim

Southern Connecticut State University ( email )

501 Crescent St
New Haven, CT 06515
United States

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