Fintech and Banks Collaboration: Does it Influence Efficiency in the Banking Sector?
The efficiency of the banking sector in Sub Saharan Africa is low compared to rest of the world and Fintech is taunted to alter this scenario. Efficient banks increase financial stability, intermediation and value to the shareholders. As Fintech innovations continue to alter the landscape in the banking sector, banks in Kenya are forming collaborations that are envisioned to shape the evolution of credit allocation and delivery of services. The study investigates the influence of Fintech on a bank's efficiency in credit allocation using the data envelopment model with input orientation based on the intermediation dimension. Efficiency scores are decomposed as technical efficiency, pure technical efficiency and scale efficiency. Secondary data for the period 2009 2018 is extracted from thirteen banks sampled from the top fifteen banks in Kenya based on their market share. The banks are either locally owned or listed in Nairobi Securities Exchange, of which five have Fintech collaborations with a Pre Fintech and Post Fintech period. Panel regression model tested the effect of financial ratios on technical efficiency of the banks. Fintech collaborating banks are more technically efficient based on models M1, M2 and M3 in Pre Fintech. In Post Fintech, the Fintech banks are more efficient based on models M2, M3 and M4 but with decreasing returns to scale which is due to the banks being overly large, thus nonoptimal in their operations. The positive effect on technical efficiency is observed from the ratios, liquidity, loan intensity, return on assets and cost of income. Cost of intermediation and credit risk had a negative effect on technical efficiency. Therefore, Fintech and banks collaborations did not significantly influence efficiency in the banking sector.