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Top1. Introduction
The digital transformation of banking sector through FinTech has dominated the business agenda of commercial banks for the past 10 years. COVID-19 has significantly accelerated this digital trend. Traditional commercial banks have incorporated new FinTech and strengthened their application of FinTech to promote financial innovation and meet customers’ act and view. However, traditional banks often deal with FinTech in an extremely inefficient and fragmented manner (Marous, 2013; KPMG, 2017). FinTech companies (FinTechs) can provide full-cycle FinTech solution service for banks. Their application-centric and data-centric businesses give them more advantages than traditional financial players, such as better management of credit risks and working capital, the knowledge of how best to manipulate data, and ongoing investment in new technologies (KPMG, 2018). But as new entrants, FinTechs are lack of security reputation, infrastructures, and customer bases. A survey of banks and FinTechs implied a significant match between banks’ weak points and Fintech companies’ strong points, and vice versa (Economist Intelligence Unit, 2015). Thus, both banks and FinTechs see tremendous opportunities to create more efficient financial products and services by develop long-term strategic collaboration (Thakor, 2020; Yang et al., 2020).
Bank-FinTech strategic collaboration (FSC) can be defined as cross-border financial innovation and value chain specialization based on their comparative advantages. According to KPMG 2017 top of mind survey, 26 percent of financial institutions in the world have already cooperated with one or more FinTech companies, and an additional 27 percent put forward overall planning to develop such collaborations within the next 2 years (KPMG, 2018). In the recent five years, the collaborations between bank and FinTechs have proliferated. By the end of 2020, the 4 biggest commercial banks, 13 joint-stock banks, and more than 40 of 134 city commercial banks in China have established strategic collaborations with FinTechs. Setting up a partnership with FinTechs is one of the ways to rapidly obtain vital FinTech knowledge and keep up with the pace of innovation (Luo et al., 2020; Acar and Tak, 2019). Against this background, whether FSC affect bank efficiency becomes an interesting question, which motivates our study.
Although some researchers investigated the relationship between FinTech and bank efficiency (Yang et al., 2021; Sheng, 2020), these papers focused mainly on the impact of outside Fintech development. To best of our knowledge, current researches of the effect of FSC are scarce and rely mainly on data from large commercial banks (Drasch et al., 2018; Luo et al., 2020). Hence, their findings more pronounced for large commercial banks. This paper concentrates on this academic gap and complements the existing research.
This study focuses on city commercial banks mainly for three reasons. First, large banks with technical capabilities and skilled employees can develop FinTech by themselves. Compared to large banks, small and medium banks, such as city commercial banks, are thought to be lack of research personnel and technical resources. Hence, they are desperate for cooperation with FinTechs to obtain knowledge and technology from external organization. Second, city commercial banks, as a new force in China's banking industry, play an important role in serving regional economy development, small and micro enterprises and urban residents. By 2020, the total assets and liabilities of 134 city commercial banks accounted for 12.75% and 12.88% of banking industry, respectively. Thus, it is of great economic significance to research city commercial banks.