The financial sector in developing Asian economies is undergoing a rapid transformation, driven by the integration of digital technologies. A new study published in Humanities and Social Sciences Communications provides new evidence of how financial technology (FinTech) is shaping the performance of banks across the region.
Titled “Financial technology and banking performance in developing countries: evidence from an advanced quantile regression approach,” the paper examines the relationship between FinTech adoption and banking performance (BP) in 33 developing Asian countries from 2010 to 2022. The research, using advanced econometric techniques such as Method of Moments Quantile Regression (MMQR) and Bootstrapped Quantile Regression (BSQR), delivers fresh insights into how technology, governance, and performance intersect in the financial ecosystem of emerging markets.
FinTech as a catalyst for banking performance
The study highlights that FinTech adoption consistently improves banking performance across the region, but its effects are more profound among lower-performing banks. Institutions with weaker starting points experience sharper improvements in efficiency, customer access, and competitiveness after integrating digital solutions such as mobile banking, AI-driven analytics, and digital payment systems.
For high-performing banks, however, the marginal benefits of technology adoption are more modest. This trend reflects the saturation of efficiency gains once digital frameworks are fully embedded, emphasizing that early or delayed adopters stand to gain the most from the ongoing digital transformation.
The findings underscore the disruptive power of digital technologies in leveling the financial playing field. In countries with fragmented banking infrastructures, FinTech adoption enables smaller and mid-sized banks to modernize operations, reduce service delivery costs, and meet customer demands more effectively. This dynamic is accelerating financial inclusion, particularly in underserved rural and peri-urban areas where traditional banking penetration has historically been limited.
By enabling faster transaction processing, real-time risk analysis, and tailored product offerings, FinTech platforms are not only improving operational efficiency but also enhancing customer trust and engagement – factors that translate directly into measurable performance gains.
Economic governance as the game-changer
A key insight from the research is the critical role of economic governance (EG) in moderating the relationship between FinTech and bank performance. The study identifies governance as the foundation that allows technological adoption to translate into sustained growth and stability.
Countries with robust institutional frameworks, characterized by political stability, sound regulatory quality, and high institutional accountability, experience significantly greater benefits from FinTech integration. In these environments, digital banking systems operate within well-defined rules, reducing the risks of fraud, cybercrime, and regulatory arbitrage. Strong governance also encourages innovation by providing clarity on compliance and enabling transparent collaboration between financial institutions and technology providers.
Conversely, in economies where governance remains weak or fragmented, the potential of FinTech is undermined by inefficiencies and heightened risks. Poor regulatory oversight can exacerbate systemic vulnerabilities, leading to issues such as digital fraud, shadow banking growth, and financial exclusion for vulnerable populations.
The research highlights that governance not only amplifies the positive impacts of technology but also stabilizes banking ecosystems, ensuring that digital adoption contributes to long-term resilience rather than short-term gains. This finding presents a clear mandate for policymakers: digital transformation in banking cannot succeed without parallel investments in regulatory strength, institutional transparency, and enforcement capacity.
Lessons from the pandemic and strategic implications
The COVID-19 pandemic acted as an accelerant for digital banking adoption across developing Asia. Lockdowns, mobility restrictions, and the urgent need for remote financial services pushed both banks and consumers toward digital platforms at an unprecedented pace. The study notes that this rapid shift helped banks maintain operations, expand digital payment systems, and innovate customer engagement strategies during a period of global disruption.
However, the accelerated adoption also exposed gaps in governance and infrastructure. In several markets, underdeveloped cybersecurity frameworks and limited consumer awareness created vulnerabilities, highlighting the urgent need for comprehensive risk management strategies.
The research provides several actionable insights for stakeholders:
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For policymakers and regulators, the findings underline the necessity of harmonizing technological innovation with regulatory oversight. This means updating financial regulations to keep pace with emerging technologies while fostering an environment that encourages responsible innovation.
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For financial institutions, the message is clear: digital transformation should not be treated as a one-time upgrade but as an ongoing strategic priority. Investment in advanced analytics, blockchain, and AI-driven compliance systems can yield long-term operational efficiencies and risk mitigation.
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For technology developers, the growing demand for secure, scalable, and interoperable digital solutions presents opportunities to partner with banks in co-creating platforms that meet both operational needs and regulatory standards.
The study emphasizes that sustainable growth in banking performance hinges on synchronized development — the simultaneous advancement of digital financial infrastructure and governance frameworks. When these elements align, the benefits of FinTech adoption extend beyond individual institutions to drive systemic improvements in efficiency, resilience, and financial inclusion.
A blueprint for the future of banking in developing economies
The findings of this research carry significant implications for the future trajectory of banking in developing Asia. As financial ecosystems become increasingly digitized, the ability to harness technology effectively while ensuring robust governance will determine which economies can maximize the transformative potential of FinTech.
For countries seeking to deepen financial inclusion, particularly in underserved regions, the integration of mobile banking platforms, AI-powered risk assessment tools, and real-time payment systems can accelerate economic participation and growth. However, without the foundation of strong governance, these advancements risk reinforcing inequalities and exposing consumers to systemic vulnerabilities.
By offering a quantile-based analytical perspective, the study provides a nuanced understanding of how technology impacts banks at different performance levels. This approach enables more targeted policymaking, ensuring that interventions are designed to support not only high-performing banks but also those striving to bridge performance gaps.