Digital Transformation in Banking: FinTech Disruption, Risk Dynamics, and Policy Implications in the Global Landscape

Abstract

This study examines the multifaceted impact of digital transformation on the global banking sector, integrating analyses of FinTech disruption, risk management evolution, consumer behavior shifts, and policy responses. Drawing on a mixed-methods approach—including cross-sectional data from 120+ banks across 30 countries (2021–2023) and in-depth interviews with 45 industry stakeholders—it identifies key trends shaping the sector: the rise of embedded finance models, the adoption of AI-driven risk assessment tools, and the growing tension between innovation and regulatory compliance. The findings reveal that banks embracing end-to-end digitalization (e.g., cloud-native infrastructure, open banking APIs) achieve 23% higher operational efficiency and 18% greater customer retention than traditional peers, but face heightened cyber risk exposure (a 35% increase in data breaches among early adopters). Additionally, the study highlights regional disparities: Asian markets lead in mobile payment penetration (89% of consumers in China, India, and South Korea), while European banks prioritize regulatory alignment with PSD2. For policymakers, the research proposes a “pro-innovation” regulatory framework that balances systemic stability with technological experimentation, such as sandbox programs and cross-border FinTech coordination. Ultimately, the paper argues that digital transformation is not merely a technological shift but a strategic imperative for banks to remain competitive in a rapidly evolving financial ecosystem.

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