The FinTech effect: a comparative analysis of bank profitability in Europe and Asia

Purpose This study investigates the divergent impact of financial technology (FinTech) on the profitability of incumbent commercial banks in Europe and Asia. It resolves contradictory findings in existing literature by demonstrating that FinTech's effect is context-contingent—moderated by regulatory stringency, customer entrenchment, and capital depth—rather than universally disruptive or complementary. Design/methodology/approach We analyze a unique panel dataset of 16 Global Systemically Important Banks (G-SIBs) and national champions across Europe and Asia from 2013 to 2023. To address endogeneity and the constraints of a small sample size (N = 16), we employ a parsimonious Dynamic Panel IV (Anderson-Hsiao) estimator alongside a static First-Difference model. Robustness is tested using Return on Assets (ROA). Findings The results reveal a stark regional divergence. In mature European markets, FinTech development shows no statistically significant impact on bank profitability (p = 0.7765), supporting the “Incumbent Resilience” hypothesis. Stringent frameworks like General Data Protection Regulation (GDPR) and PSD2 function as a “regulatory moat,” enabling European banks to co-opt innovation through superior capital resources and strategic acquisitions. Conversely, in dynamic Asian markets, FinTech exerts a highly significant negative impact on profitability (β = −0.1005, p = 0.0004). We theorize this as a “Double Squeeze”: Super-App ecosystems unbundle high-margin services through technological leapfrogging while incumbents remain burdened by the high fixed costs of legacy physical infrastructure. Practical implications The study offers distinct strategic mandates for practitioners. European banks should leverage capital buffers for inorganic growth and strategic acquisitions to access new customer segments, while Asian incumbents must urgently adopt “Offensive Digitization” and Banking-as-a-Service (BaaS) models to retain transaction volume amid margin compression. Regulators face divergent mandates: Europe should expand regulatory sandboxes to foster competition without sacrificing stability, while Asia must implement “same activity, same regulation” principles to close arbitrage gaps exploited by lightly regulated Super-Apps. Originality/value This paper contributes the first direct comparative analysis demonstrating that FinTech's impact is geographically contingent rather than universal. It theoretically reconciles the “efficiency versus competition” debate by grounding European neutrality in the Resource-Based View and Asian disruption in Schumpeterian Creative Destruction—resolving literature contradictions through explicit boundary conditions rather than binary interpretations.