Fintech fuels rural banking efficiency, but adaptive leadership lacks impact

Indonesia’s rural banking sector is undergoing a critical transformation driven by digital innovation and executive leadership shifts. A new study published in the Journal of Risk and Financial Management titled “Leadership Is a Driving Factor: Financial Technology Effect in Rural Bank Performance” reveals how fintech adoption and director performance are redefining operational outcomes for rural financial institutions.

The study examines the structural pathways linking fintech innovation, adaptive leadership, and individual director performance to the operational success of rural banks, formally known as Bank Perkreditan Rakyat (BPR), in Indonesia. Leveraging a sample of 305 bank executives and managers across the country, the research uses partial least squares structural equation modeling (PLS-SEM) to unpack these relationships and test six hypotheses.

How does fintech innovation influence rural bank performance?

The study shows a strong positive link between financial technology innovation and rural bank performance. As fintech solutions such as mobile banking, peer-to-peer lending, and big data analytics gain traction, rural banks integrating these tools tend to outperform their counterparts still reliant on traditional service models.

Fintech’s role in expanding service outreach, reducing operational costs, and increasing credit access has been particularly transformative in Indonesia’s underserved areas. Rural banks adopting fintech have effectively bypassed infrastructural limitations, enabling service delivery to remote communities without the need for costly physical expansion. This shift has not only enhanced banking efficiency but also contributed to Indonesia’s broader financial inclusion goals.

The findings underscore the alignment between fintech innovation and the resource-based view (RBV) of competitive advantage. According to RBV, organizations can outperform competitors by deploying unique, valuable, and hard-to-imitate resources - in this case, digital capabilities. For rural banks, fintech platforms represent such strategic assets, capable of generating sustainable performance benefits.

Does adaptive leadership mediate technological innovation?

The study also delves into the role of adaptive leadership as a potential mediator between fintech innovation and rural bank performance. While previous literature has argued that adaptive leadership is critical for facilitating digital transformation, the Indonesian data tells a more nuanced story.

Researchers found that while fintech innovation positively influences adaptive leadership styles, adaptive leadership does not significantly impact rural bank performance directly. Nor does it mediate the relationship between fintech innovation and bank performance. This suggests that although adaptive leadership is necessary for internal adjustments and team coordination, it may not be the decisive factor in enhancing overall bank outcomes.

The study attributes this unexpected finding to several challenges unique to rural banks. Many of these institutions lack sufficient digital infrastructure, and their leadership development efforts are often underfunded or inadequately aligned with digital strategy. As a result, leadership adaptation remains reactive and isolated from broader technological shifts. The study recommends that rural banks move beyond symbolic leadership gestures and work toward structurally embedding adaptive leadership practices within digital implementation strategies.

What is the role of director performance in organizational success?

Among the study’s most compelling conclusions is the affirmation of individual director performance as a key driver of rural bank success. Directors who exhibit strong managerial capabilities, defined by strategic vision, regulatory knowledge, and innovation leadership, significantly improve organizational outcomes.

This finding reinforces earlier research asserting that executive performance is a decisive factor in shaping firm success. In the context of rural banking, directors who combine operational knowledge with a forward-thinking approach help ensure that fintech adoption is strategically executed rather than tactically improvised.

Furthermore, the research establishes a strong relationship between adaptive leadership and director performance. Directors who embrace adaptive leadership traits, such as situational responsiveness, team empowerment, and agility, demonstrate superior individual effectiveness. This creates a virtuous cycle in which adaptive leadership improves director performance, which in turn boosts rural bank performance.

However, the inability of adaptive leadership to mediate fintech’s influence suggests a disconnect between personal leadership development and organizational readiness. The study calls for holistic transformation strategies that do not just train individual leaders but also overhaul institutional frameworks to foster an integrated digital culture.

Policy and strategic implications

Key recommendations include:

• Digital Ecosystem Building: Rural banks must invest in digital infrastructure, including cloud computing, mobile platforms, and data analytics tools, to fully capitalize on fintech’s potential.
• Leadership Development: Programs focused on building digital literacy, strategic thinking, and change management among directors and mid-level managers are critical.
• Cross-Functional Collaboration: Internal structures should facilitate ongoing coordination between technology teams and executive leadership to ensure digital transformation is both systemic and strategic.
• Performance-Based Evaluation: Leadership performance metrics should shift from tenure and administrative milestones to innovation outcomes, team empowerment, and strategic alignment.
• Cultural Change Management: Organizational culture must evolve to accommodate agile processes, proactive problem-solving, and innovation receptiveness, particularly in hierarchical institutions like rural banks.

The study urges rural banks to adopt an integrative approach that combines technological resources, leadership strategies, and organizational agility. Only by doing so can they transition from isolated digitization efforts to cohesive, performance-oriented transformation.