The Role of Regulatory Capital in Shaping FinTech’s Impact on Bank Intermediation Costs

This research examines the influence of Fintech (Financial Technology) and regulatory capital on the bank intermediation cost. To achieve the objectives of the study, various regression techniques were utilized, including the System Generalized Method of Moments (GMM), Pooled Ordinary Least Squares (OLS), and the Vector Error Correction Model (VECM). The authors tested the hypothesis using data from 32 banks in Bangladesh, spanning 24 years (2000–2023). The revelation from the findings indicates that fintech adoption has a significantly negative effect on bank intermediation costs. Similarly, regulatory capital also shows a statistically significant negative relationship with intermediation costs, with these effects persisting over both long and short-term periods. Notably, Islamic banks display higher regression coefficients than conventional banks, suggesting that fintech and regulatory capital restrictions have a more pronounced impact on Islamic banking margins. The present study additionally highlights that the effect of fintech is more substantial during the Covid-19 period (2020 onwards) compared to the pre-Covid era (2000–2019). Additionally, Stochastic Frontier Analysis (SFA) indicates that increasing cost inefficiencies accelerate the intermediation costs. The study's findings provide key insights for policymakers, supporting the development of regulatory frameworks regarding the banking sector, predominantly in relation to fintech.