FINTECH, BANKS, AND THE COVID-19 PANDEMIC: EVIDENCE FROM INDONESIA

Abstract

This study investigates the relationship between fintech and banks and how this relationship is affected by the COVID-19 pandemic. We use monthly stock data of all banks consistently listed on the Indonesian Stock Exchange from February 2018 to March 2021. For fintech data, we use a total of four proxies that encompass both lending and borrowing aspects of peer-to-peer lending fintech. To provide robust results, we use five model specifications. Furthermore, we also estimate the models using both the fixed effect and the two-step system generalized method of moments estimators. To see the dynamics of the relationship between fintech and banks before and during the pandemic, we estimate one of our five models using half-yearly data for each semester from the second semester of 2018 to the second semester of 2020. Our fixed effect and two-step system generalized method of moments estimates indicate a relatively less negative impact of fintech on bigger banks. This relationship is further exemplified during the COVID-19 pandemic period. We argue that these findings have significant implications for the Indonesian financial authorities’ open banking strategy and for the future of the Indonesian financial system in general.