1. Introduction
A new round of technological revolution and industrial change is in the ascendant. Core digital technologies, such as cloud computing, artificial intelligence, blockchain, and big data, are deeply integrated within the finance industry [
1], and digital finance has emerged. Digital finance is similar to internet finance and fintech in connotation, emphasizing that traditional financial institutions as well as internet enterprises employ digital technologies to create new business models, such as financing, payment, and investment [
2], and its competitive edge vis-à-vis cloud data, low cost, information flow integration, and convenient high efficiency will undoubtedly engender consequential challenges to old business models. Over the past few years, the impact of digital finance on traditional banking business has led to the intensification of “financial disintermediation.” As financial transactions become increasingly closely related to customers’ consumption or work and life scenarios, fintech companies, with their customer networks and data advantages, have impacted the banking system with innovative financial products in payment and clearing, as well as off- and on-balance-sheet businesses [
3]. Thus, commercial banks’ single-business, profit-driven model by scale has been significantly challenged. In this context, commercial banks have successively increased their investment in digital finance, using digital finance technology to reshape various links, such as strategies, operations, product services, channels, and risk control, and taken steps to differentiate their services. According to disclosure by the China Banking and Insurance Regulatory Commission, total investment in technology by commercial banks reached 207.8 billion CNY in 2020, with a year-on-year growth rate of over 25%. Commercial banks have integrated digital finance from a strategic level to technology investment and are shifting toward mastering the initiative of the digital finance market. Therefore, against the backdrop of full competition triggered by the rise of digital finance, can commercial banks successfully turn “pressure” into “power”? What will be the impact of digital finance on the total factor productivity (TFP) of commercial banks after changing the competition pattern?
Notably, TFP, which refers to the input–output ratio of business activities, is used to measure whether the allocation of resources is effective. In the existing research, there are many studies on TFP, but only a few studies have focused on the impact of digital finance on the TFP of commercial banks, and the findings are inconsistent. One view is that digital finance improves the efficiency of commercial banks by increasing their rate of technical progress. Based on the technology spillover theory, Shen and Guo [
4] explored the relationship between internet finance and commercial bank efficiency and introduced external internet technologies through demonstration, competition, employee mobility, and business linkages to improve TFP. Liu and Yang [
5] further confirmed this view after replacing the sample and measurement methods of relevant variables; that is, internet finance could enhance TFP by improving banks’ technical levels. The implementation of merger and acquisition (M&A) strategies strengthens technology spillover effects. However, another view is that digital finance cuts the monopoly rents of commercial banks and impacts traditional business operations, thus significantly reducing their efficiency. Zhang and Liu [
6] believe that the substitution effect of internet finance on banks is greater than the technology spillover effect, thus ultimately reducing the efficiency of capital allocation; that is, the deepening of internet finance will impact the scale of traditional business to a certain extent. Feng and Guo [
7] argue that digital finance decreases bank returns through the substitution effect and perfect competition. Liu [
8] analyzed four aspects of bank assets, liabilities, payment and settlement, and off-balance-sheet business and reported that internet finance reduces bank returns by decreasing both interest and non-interest income. There is a divergence of views between empirical evidence and theoretical analysis. Thus, further research is warranted.
In addition, digital finance is flourishing, which will reduce the share of traditional deposit and loan businesses, hence squeezing the profit space and forcing commercial banks to adjust their strategies and resource allocation practices to enrich their sources of income and compete for customer resources to seek new growth points [
9]. Digital finance will inevitably have an important impact on the competitive environment, risk taking, innovation capacity, economies of scope, and the scale of commercial banks, which will subsequently affect TFP. However, there is a lack of research on transmission channels and the moderating effects of digital finance on bank efficiency. The banking system is the main channel for the distribution of savings and credit, and it plays an essential financial intermediation role in the economy [
10,
11]. The efficiency of financial intermediation directly affects the speed of a country’s economic growth, while its bankruptcy may lead to systemic crises and thus negatively affect the economy. Hence, an in-depth exploration of these issues is not only beneficial for commercial banks to improve their efficiency, accelerate transformation, and stabilize their market position in an increasingly fierce competition, but it is also crucial for regulators to formulate policies to maintain a stable market. Based on existing studies, this study measured the TFP of 132 commercial banks in China between 2011 and 2019 via data envelopment analysis (DEA) and empirically tested the relationship between digital finance and commercial banks’ efficiency, as well as the mediating effect of risk taking.
5. Conclusions
Taking 132 commercial banks operating between 2011 and 2019 as samples, this study examined the impact of digital finance on the TFP of commercial banks, the partial mediation of risk taking, and the moderation of diversification. The conclusions presented are as follows: (a) Digital finance positively affects TFP by generating the perfect competition and technology spillover effect, while there is heterogeneity in the nature of property rights; that is, the effect of digital finance on the efficiency of state-owned commercial banks is not significant, but that of non-state-owned commercial banks is significant. Furthermore, digital finance has a significantly positive correlation with technical progress and efficiency. (b) Risk taking partially mediates the relationship between digital finance and TFP; that is, digital finance can strengthen risk management by intensifying the competition in the banking industry and upgrading the technical level, thus reducing risk taking to improve efficiency. (c) Diversification has a positive moderating effect on the relationship between digital finance and TFP.
In the context of the accelerated development of digital finance, to boost bank efficiency more effectively, the following aspects should be considered:
First, while digital finance has a subversive impact on the traditional financial industry, it also provides transformational opportunities. The future competitive standing in the market depends on whether traditional commercial banks can seize this chance. Therefore, in the face of increasingly fierce competition, commercial banks should actively implement differentiation strategies, accelerate digital transformation, and innovate financial services.
Second, diversification is an effective way of avoiding risks. Commercial banks are bound to face great challenges in the process of transforming from traditional financial intermediaries to service intermediaries. At this point, commercial banks can take advantage of digital technology and new infrastructure to implement diversification, which can reduce the implementation risks and costs and mitigate the impact of digital finance on traditional businesses, thereby accelerating the pace of transformation and elevating efficiency.
Third, authorities should guide the transformation process. Simultaneously, they should gradually perfect the relevant laws and regulations to accelerate the development of digital technology; stimulate and guarantee digital transformation; and create a fair, efficient, and healthy developmental environment for the future development of the banking industry.
Limitations and Future Research
This study has several limitations, which provide opportunities for future research. From the perspective of control variables, the TFP of commercial banks is influenced not only by GDP and stock market development but also by other macro factors, such as the growth rate of money supply and the rate of unemployment, while further inquiry could add more control variables. In addition, limited to the availability of data, diversification was measured by interest and non-interest income, while subsequent studies can consider segmenting the revenue of commercial banks to investigate the moderating effect of different types of revenues on the relationship between digital finance and TFP.