Traditional bank transforming into a digital interface with fintech icons.

Decoding Bank Performance: Are FinTech and Digitalization the Keys to Future Success?

Lena Kashyap in Business & Economy August 2025 • 5 min read.

"Explore the evolving world of bank performance, from traditional determinants to the disruptive influence of FinTech and digitalization."

In today's rapidly changing financial landscape, understanding what drives bank performance is more critical than ever. Banks face increasing pressure to achieve their objectives, create value for stakeholders, and outperform competitors. This pressure comes from various determinants, including market concentration, economic growth, and regulatory environments, all of which are constantly evolving.

Traditional metrics are being challenged by the rise of financial technology (FinTech) and the increasing digitalization of financial services. These forces are reshaping the industry, creating both opportunities and threats for banks. To navigate this complex environment effectively, bank managers, regulators, and academics need a clear understanding of the factors influencing bank performance in this new era.

This article provides an up-to-date overview of the scientific research on bank performance determinants. It highlights the gaps observed within the existing literature, particularly concerning the impact of FinTech and digitalization, and suggests avenues for future research to address these gaps. By examining both traditional and emerging factors, this analysis aims to provide valuable insights for those seeking to understand and improve bank performance in the years to come.

What Factors Truly Drive Bank Performance Today?

Traditional bank transforming into a digital interface with fintech icons.

Research into bank performance determinants has identified a range of factors that can be broadly categorized as either exogenous (external) or endogenous (internal). Exogenous factors include macroeconomic conditions such as economic growth, inflation, and interest rates, as well as regulatory policies and market concentration. Endogenous factors, on the other hand, relate to a bank's internal characteristics, such as its size, capital structure, cost efficiency, and risk management practices.

The impact of these factors on bank performance has been a subject of extensive debate among researchers. For example, some studies have found a positive correlation between market concentration and bank performance, suggesting that banks in less competitive markets tend to be more profitable. However, other studies have found the opposite, arguing that increased competition can drive banks to become more efficient and innovative.

Market Concentration: A hotly debated topic, with some studies suggesting a positive link between less competition and higher profits, while others argue that competition drives efficiency and innovation.
Economic Growth: Generally, a positive influence, as a growing economy creates more opportunities for banks. However, the relationship can vary in developing countries.
Interest Rates: Directly impact a bank's net interest margin (NIM), influencing overall profitability.
Regulations: Designed to prevent market failures, but stricter regulations can also limit a bank's activities and investment options.
Bank Size: Larger banks may benefit from economies of scale, but some research suggests that excessive size can lead to higher management costs and reduced efficiency.
Capital Structure: Higher equity can provide stability, but some studies have found a negative correlation between equity and bank performance.
Cost Efficiency: A key indicator of operational mastery, reflecting a bank's ability to maximize profits while minimizing costs.
Liquidity: The ability to meet short-term obligations, a positive factor but excessive liquidity can lead to missed investment opportunities.
Credit Risk Management: Effective management of credit risk is crucial for minimizing losses from doubtful receivables and defaulting clients.

While traditional factors remain relevant, the emergence of FinTech and the increasing digitalization of financial services are introducing new dimensions to the bank performance equation. These technology-driven forces have the potential to disrupt traditional business models, create new efficiencies, and transform the way banks interact with their customers. Understanding the impact of FinTech and digitalization is, therefore, essential for navigating the future of bank performance.

The Future of Bank Performance Research

As the financial landscape continues to evolve, further research into the determinants of bank performance is crucial. In particular, there is a need to deepen our understanding of the technology-driven factors that are reshaping the industry. This includes exploring the impact of FinTech start-ups, the role of investment in digitalization, and the implications of these trends for different regions and countries. By addressing these gaps in the existing literature, researchers can provide valuable insights for policymakers, bank managers, and academics seeking to navigate the challenges and opportunities of the future.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.32038/ncaf.2023.09.03,

Title: Bank Performance Determinants: State Of The Art And Future Research Avenues

Subject: q-fin.gn

Authors: Anas Azzabi, Younes Lahrichi

Published: 14-11-2023

Everything You Need To Know

What are the primary exogenous and endogenous factors influencing bank performance?

Bank performance is influenced by both exogenous (external) and endogenous (internal) factors. Exogenous factors include macroeconomic conditions such as economic growth, inflation, and interest rates, and also encompass regulatory policies and market concentration. Endogenous factors refer to a bank's internal characteristics, including its size, capital structure, cost efficiency, and risk management practices.

How does economic growth impact bank performance, and are there any variations based on the region?

Economic growth generally has a positive influence on bank performance as a growing economy creates more opportunities for banks. However, the relationship can vary, particularly in developing countries, where the impact may differ based on various factors such as the stability of the economy and the regulatory environment.

What are the potential benefits and drawbacks of market concentration on bank profitability, and what do research studies suggest?

Market concentration's impact on bank profitability is a debated topic. Some studies indicate a positive correlation, suggesting that banks in less competitive markets may have higher profits. However, other studies argue the opposite, contending that increased competition can drive banks towards greater efficiency and innovation. These opposing views highlight the complexity of the relationship and the importance of considering specific market conditions.

In what ways do FinTech and digitalization transform the determinants of bank performance, and what implications does this have?

FinTech and the increasing digitalization of financial services introduce new dimensions to the bank performance equation, potentially disrupting traditional business models. This transformation creates both opportunities and threats for banks, necessitating a deeper understanding of these technology-driven factors. Investment in digitalization and the impact of FinTech start-ups are key areas for future research, as they reshape how banks interact with customers and operate, influencing cost efficiency, risk management, and overall performance. This has implications for different regions and countries.

How can bank managers, regulators, and academics use the information about bank performance determinants to navigate the future of the industry?

Understanding the various factors influencing bank performance is essential for bank managers, regulators, and academics. Bank managers can use this knowledge to make informed decisions about their internal characteristics such as cost efficiency and risk management. Regulators can use the information to create policies that foster competition and innovation. Academics can further research these determinants to provide valuable insights for policymakers and bank managers, addressing the challenges and opportunities of the future, particularly regarding the impact of FinTech and digitalization. Continuous research into these areas is crucial to navigating the evolving financial landscape.