Systemic risk in the fintech-banking system: Assessing instabilities and vulnerabilities in Central Europe

Systemic risk in banking has drawn worldwide attention since the 2007–2009 crisis. Fintech startups provide cutting-edge solutions that extend beyond banks’ traditional capabilities, fostering intensive bank–fintech cooperation and giving rise to a ‘pervaded banking system’ (PBS) with novel, largely uncharted vulnerabilities. Using complex adaptive systems theory, we assemble a dataset of 604 fintechs and 802 banks in the Central Europe (DACH-Region – Germany, Austria, and Switzerland) – and propose a structurally defined stability concept. We evaluate PBS stability through multiple network-based stress-testing scenarios. The results show that large-scale fintech failures can trigger severe systemic disruptions, whereas exits of small and recently established fintechs have limited effects. By contrast, fintech firms occupying structurally exposed positions act as key risk amplifiers, a channel that traditional risk assessments largely overlook. Our framework thus complements conventional market- or balance-sheet-based approaches by uncovering structure-induced vulnerabilities into the financial system. • Assess the impact of diverse fintech firms on banking system stability and interconnectedness. • Financial regulation: Inform policymakers on extending regulations to reduce overall banking system risk. • Utilize complex systems to analyse risks posed by different types of fintech. • Highlight risk awareness for bank managers in fintech collaboration agreements. • Provide strategic insights for fintech managers within the banking-fintech ecosystem.