Banking transformation: Digital finance pushes emerging economies toward higher efficiency

Banks in emerging economies are seeing measurable performance improvements from the adoption of digital finance technologies, according to a new study that details how FinTech innovation and blockchain adoption are reshaping operational efficiency across developing financial systems.

The research, titled “Banking in the Age of Blockchain and FinTech: A Hybrid Efficiency Framework for Emerging Economies” and published in the Journal of Risk and Financial Management (JRFM), combines efficiency measurement with econometric modeling to explore how technological disruption is affecting banks in twelve emerging countries. The authors apply a hybrid framework linking data envelopment analysis (DEA) and generalized method of moments (GMM) regression to identify the scale and drivers of efficiency change over nearly a decade.

How are banks becoming more efficient in the digital era?

The authors examined 60 banks from 2015 to 2023, covering markets as diverse as Brazil, Colombia, Mexico, Serbia, Croatia, Romania, Vietnam, Indonesia, the Philippines, Egypt, Kenya, and Pakistan. The study found a clear upward trajectory in bank efficiency during this period, with average efficiency scores rising from 0.78 in 2015 to 0.95 in 2023.

This growth was not merely a product of internal improvements but of broader technological change. Using a Malmquist productivity index, the researchers showed that most gains stemmed from technical progress, the outward shift of the efficiency frontier, rather than catch-up effects. In practical terms, this means the banking sector is being reshaped by technology adoption that enables entirely new operating models rather than incremental efficiency gains from traditional methods.

The findings underline that digital technologies such as mobile banking platforms, automated transaction systems, and AI-driven customer interfaces are not simply streamlining operations but are redefining the benchmarks of efficiency in emerging financial markets.

What role do fintech and blockchain play in boosting efficiency?

Next up, the analysis applied a system GMM model to isolate the impact of FinTech and blockchain adoption alongside structural and macroeconomic factors. Results show that FinTech was the most significant positive determinant of efficiency, with the FinTech index coefficient emerging as both large and statistically robust. This demonstrates that digital transaction platforms, mobile banking penetration, and app-based financial services are driving banks toward leaner, more productive operating models.

Blockchain adoption was also associated with efficiency improvements, though with a smaller effect size. Its contribution reflects early-stage integration into settlement processes, compliance systems, and cross-border payments. While blockchain’s current role is modest, the authors argue that its long-term potential could be substantial as regulatory clarity and infrastructure expand.

Other drivers included bank capitalization, which showed a strong positive relationship with efficiency, confirming that well-capitalized institutions are better placed to fund digital transformation. Bank size also played a modest but positive role, suggesting economies of scale in technology adoption. On the negative side, inflation was shown to undermine efficiency, while greater financial inclusion contributed positively, highlighting the role of digital tools in expanding banking access in underserved markets.

What do these findings mean for policymakers and bank leaders?

For bank executives, investment in digital platforms is no longer optional but essential for competitive efficiency. Priorities include scaling mobile banking services, integrating AI-driven onboarding and risk management, and piloting blockchain solutions in settlement and compliance processes. The study also highlights the need for strong capital positions to support these investments, making prudential management and recapitalization critical in parallel with innovation strategies.

For policymakers, the research points to the importance of an enabling regulatory environment. Governments are urged to expand digital banking licenses, strengthen open banking frameworks, and provide clear, pro-innovation guidelines for blockchain adoption. Cybersecurity resilience must also be prioritized to safeguard increasingly digitized banking systems. Beyond regulatory frameworks, the study underscores the value of investing in financial inclusion initiatives. Expanding access to digital accounts, payments infrastructure, and financial literacy magnifies the efficiency gains documented in the research, ensuring that technological change benefits society more broadly.

The authors further caution that blockchain adoption remains at an early stage in emerging markets and that measurement challenges limit the scope of current analysis. However, they argue that as infrastructure matures, blockchain will likely grow in significance, particularly in areas such as real-time settlement, fraud prevention, and transparent compliance reporting.