FinTech and Its Transformational Role in Enhancing the Traditional Banking Sector: Evidence from Jordan

Abstract

Purpose: This study assesses the transformational impact of FinTech on the performance of Jordan’s traditional banks across profitability, operational efficiency, and stability, while testing indirect effects via efficiency and moderating roles of bank characteristics, market structure, and open-banking/API intensity.

Design/methodology: We analyze a panel of listed Jordanian banks (56 bank–year observations, 2018–2024). A multi-dimensional FinTech index is constructed (API intensity, digital transaction share, tech spend-to-assets, text-based disclosure proxy). Two-way fixed effects (bank/year) with bank-clustered SEs are estimated, after stationarity, multicollinearity, and heteroskedasticity checks. Mediation is bootstrapped; interactions cover bank size, capitalization, liquidity, bank type, market competition, and open-banking intensity.

Findings: FinTech adoption is positively significant for profitability (ROA/ROE/NIM), improves efficiency (lower cost-to-income and OPEX/assets; higher DEA), and strengthens stability (higher Z-score; lower NPL and return volatility) at α ≤ 0.05. A significant indirect path operates through operational efficiency for both profitability and stability. Effects are stronger in larger, better-capitalized banks and are amplified under more competitive markets and greater open-banking/API intensity, while liquidity and bank type show mixed significance.

Originality/value: The study offers context-specific evidence using a composite FinTech construct and integrated mediation–moderation design, yielding actionable implications for enabling open-banking standards and prioritizing digital transformation investments to maximize bank performance.