Financial technology and performance in Islamic and conventional banks

Abstract

Purpose This paper aims to examine the impact of financial technology (FinTech) startups on Islamic and conventional banking performance in Indonesia. Design/methodology/approach Data were collected from a sample of 124 conventional and Islamic banks in Indonesia from 2004 to 2018. The two-step generalized methods of moments was used to estimate the system model. Findings This study finds that FinTech startups have a detrimental effect on bank performance. This study also finds that Islamic banks have low performance compared to conventional banks. However, when FinTech startups interact with Islamic banks, this paper discovers that a greater number of FinTech startups have a positive effect on the performance of Islamic banks, particularly the peer-to-peer lending category. Additionally, this paper finds that FinTech startups improve Islamic banks' performance in both normal and crisis periods. Practical implications This paper provides recommendations for Islamic bank management and supervisors to deal with FinTech startups during normal and crisis periods by collaborating with FinTech startups and being willing to adopt cutting-edge financial technology applications. Originality/value This paper provides evidence of the impact of FinTech on the performance of Islamic banks, specifically on peer-to-peer lending and payment startup during the crisis and normal periods.

Guest editorial: Shariah governance in Islamic banks: challenges and opportunities

“…Regulatory frameworks have to move ahead from creating awareness on investor perceptions on suitability of Islamic products to trustenhancing market environment that promotes transparency, investor confidence and financial services that create jobs in real economy on the back of investments in the future of knowledge economies and sustainable solutions. In sum, this should be available through qualified and aggregated data sets (Butt et al, 2023) and through efficient provision of financial services in periods when markets squeeze (Mkalaf and Hilo, 2023;Yudaruddin, 2023). In turn, this is also linked to standardisation of governance mechanisms at macrolevel (e.g.…”

“…Given SBs' significant role in conforming to the Shariah, the study contributes significantly to assisting the regulatory and policy promulgation that enhance SBs' integrity and credibility in response to the growth of IB infrastructures and financial innovation. Yudaruddin (2023) in the titled work "Government Policy Response to COVID-19 and Bank Performance: A Comparison Between Islamic and Conventional Banks" aims to examine the joint impact of the COVID-19 pandemic and the government response on the performance of IBs and conventional banks. Data were collected from a sample of 94 conventional and 14 IBs in Indonesia from March 2020 to September 2021.…”

“…Islamic banking presents an ethical framework for banking and finance shaped by the ontological and epistemological covenants – derived from the Islamic Shariah law – of riba (interest), gharar (speculation) and maysir (gambling) (Ahmed, 2011; Beck et al , 2013; Haniffa and Hudaib, 2007; Kahf, 2004; Nawaz, 2019; Virk et al , 2022, among others). These covenants bring significant differences in the financial intermediation, product designing and development and commercialisation processes of conventional and Islamic banks (IBs).…”

Pengaruh Literasi Keuangan Dan Financial Technology Terhadap Inklusi Keuangan Di Desa Pengotan

“…Infrastruktur internet merupakan kunci dalam melaksanakan ekonomi digital, karena jika tidak ada akses menuju internet maka financial technology tidak dapat dimanfaatkan, dan tidak dapat mewjudkan masyarakat dalam sistem pembayaran non-tunai (Mustikasari & Noviardy, 2020). Pandemi Covid-19 saat ini menyebabkan terjadinya perlambatan ekonomi, financial technology berpotensi membantu dalam memulihkan perekonomian karena bersifat lowtouch economy, customer-based, berbasis social capital, menggunakan data science dan dijalankan oleh professional muda (Sung et al, 2019;Saputro et al, 2021;Marginingsih, 2021;Alblooshi, 2022;Yudaruddin, 2023).…”

Bank lending during the COVID-19 pandemic: do alliances and digital strategies matter?

“…There are no remaining studies that examined the aggregate impact of the COVID-19 outbreak and strategic relationships between FinTech and banks to address the credit crunch. Some literature only focused on exploring the effect of FinTech on banking as a complementing (Scott et al ., 2017; Klus et al ., 2019; Li et al ., 2017; Hornuf et al ., 2021) or substitution effect (Jagtiani and Lemieux, 2018; Buchak et al ., 2018; Tang, 2019; Yudaruddin, 2022).…”