Does Fintech revolution lead to the disintermediation of banks? : a study into Islamic bank income

This paper aims to examine the impact of financial technology (Fintech) on Islamic banks' income from perspective of the theory of financial intermediation. This study argues that the existence of banks as intermediaries due to transaction cost and asymmetrical information. In Islamic banking operation, fee-based income is a significant component of income derivation of providing services. The study postulates that Fintech has made access to financial services at a lower cost; hence reduce potential fee-based income for Islamic banks. This study applied panel data models from 2009 to 2016 on the dataset for Malaysia. The results provide empirical evidences on the impact of financial technology revolution on the banks’ income in Malaysia. The findings also indicated that different evidences on impact of financial technology revolution on the Islamic banks' income and conventional banks for dual banking system. Islamic banks appear to significantly affect by the Fintech revolution due low penetration of online banking and larger banks are relatively invest more on the technology which result in cost saving and increase efficiency. However, Islamic banks should embrace with the paradigm shift and emergence of financial technology revolution promptly to prevent financial disintermediation and create value to their stakeholders. This study provides empirical evidences on the impact of financial technology and Islamic banks in a dual banking system. The study will extend the current body of knowledge in the field of financial technology and Islamic banking by providing insights into regulators and operators of the Islamic banking sector.