Possibilities for Financial Technology Sector Development and its Impact on Banking Sector Profitability in Lithuania

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Research purpose. The development of financial technology sector (fintech) poses a challenge for traditional financial institutions. Therefore, it is important to analyze not only how financial technologies can change, but also how the fintech sector affects banks and their profitability. The aim of the paper is to analyze the possibilities for the development of financial technology sector and quantitatively evaluate its impact on the banking sector’s profitability in Lithuania.

Design / Methodology / Approach. After the analysis of academic literature and statistical data, the authors used expert evaluation method in order to identify development opportunities of fintech in Lithuania and correlation-regression analysis was applied to evaluate the impact of fintech on the profitability of the Lithuanian banking sector.

Findings. According to the results of expert assessment research, Lithuania possesses favorable conditions for fintech enterprises to enter the Lithuanian finance market; it is expected that this sector will continue to rapidly expand mostly in payments and banking business models. Correlation-regression analysis showed that fintech indicators has an effect on the banking sector’s profitability but the effect in not very significant. The significance of the connection is lower because banking sector adapts technologies and is influenced by fintech from inside and outside the environment.

Originality / Value / Practical implications. The fintech sector in Lithuania is still new and so far very little researched. The outcomes of this research have expanded the scope of research of the Lithuanian fintech sector. The obtained results would be useful and relevant to (i) the government sector to manage risks and ensure stability in the financial sector; (ii) financial sector entities to monitor possible developments and prepare them accordingly; and (iii) banking sector to analyze the impact of technology and fintech entities on them and take strategic decisions in this regard.

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