The Impact of Inclusive Financial Technology and Open Banking on Banking Performance: Empirical Evidence from India

Abstract

This study examines the impact of inclusive FinTech, particularly open banking, on bank performance using panel data from commercial banks over the period 2016–2026. Employing a Difference-in-Differences (DID) approach, the study evaluates whether the adoption of FinTech improves profitability, measured by Net Interest Margin (NIM) and Return on Assets (ROA). The baseline regression results reveal that FinTech adoption has a positive and statistically significant effect on bank performance. These findings remain robust across multiple tests, including parallel trends analysis, reverse causality testing, alternative variable specifications, Propensity Score Matching (PSM–DID), and placebo tests.

Further analysis explores the underlying mechanisms through which FinTech influences performance. The results indicate that FinTech enhances bank performance primarily through improvements in lending rates and optimization of liability structure, while risk-taking does not play a significant mediating role. Among these channels, lending rate emerges as the dominant mechanism. Additionally, the study identifies heterogeneous effects across different bank types, with national and rural banks benefiting more significantly from FinTech adoption compared to city banks.study provides strong empirical evidence that FinTech is a critical driver of banking efficiency and profitability. The findings have important implications for policymakers, regulators, and banking institutions aiming to promote digital transformation and financial inclusion.