The Effect of FinTech on The Profitability of Commercial Banks

Abstract

The primary objective of this project at hand is to analyze the effect of FinTech on the profitability of commercial banks. This task is rooted in the extensive goal of aligning the increased users on the digital payment apps with the commercial banks’ extensive objectives of integrating FinTech in its customer base and the improvement in profitability due to it. Digital innovation in the banking industry (e.g., VTM, ATM, and mobile banking) that are promoting inclusive financial services are also providing a new momentum to the sector while improving its performance through FinTech. Hence, the change administered due to the adoption of the FinTech services and products are linked with the dynamic profitability of the commercial banks. Thus, the focus of the project resonates with the concept of FinTech and the impact which the commercial banks of Pakistan faced, in terms of the profitability, throughout the period. We opted the ratio analysis approach to study the secondary data obtained from various commercial banks. By analyzing the profitability ratios, Return on Assets (ROA). Return on Equity (ROE) and Capital Adequacy Ratio (CAR), we got an insight that how with the 5-year range, the development in Fintech has resulted in the growth of the commercial banks. The data indicated that only the outbreak of the deadly COVID-19 caused a slowdown in the profitability due to the increase in provisions and write-offs. Otherwise, the overall, digital attraction and the online transaction trend increased during this period, resulting in the immense growth in 2023 and a better future of commercial banks in terms of increased profitability. Therefore, to increase profitability and to attain a competitive advantage, commercial banks should work towards the improved convenience of transactions along with the speed of their services and an improved access towards their financial products. Commercial banks have a significant role in Pakistan regarding the influencing the customers in adoption of FinTech services. Thus, more investment should be made towards the presence of financial inclusion in the commercial banks in the form of clear and transparent information to gain the interest of a larger population of the general public that is achievable through FinTech.