Financial Technology and Profitability in Tanzanian Commercial Banks: An Empirical Analysis

This study investigates the influence of financial technology on the profitability of commercial banks in Tanzania, addressing a significant gap in the existing literature. Using a bank FinTech index combined with bank-specific and macroeconomic factors, the analysis covers 30 Tanzanian commercial banks over the period 2010 to 2021. Panel data techniques, specifically the two-step system Generalized Method of Moments (GMM) estimator, were employed to assess the effects across large, medium, and small banks. The results indicate a positive relationship between the FinTech index and bank profitability, with a 1% increase in the FinTech index leading to a 0.078% rise in return on assets (ROA) and a 1.596% increase in return on equity (ROE). Large banks demonstrated a stronger response to FinTech development than their smaller, and medium counterparts. The findings have significant implications for policymakers and practitioners. Policymakers, particularly the Bank of Tanzania, should establish a supportive regulatory framework to encourage sustainable FinTech growth and enhance integration across all bank categories. For practitioners, especially in small and medium-sized banks, the study highlights the importance of forming strategic partnerships with FinTech firms and adopting scalable solutions tailored to their operational capacities. The banking sector can achieve improved profitability and financial stability by fostering innovation and aligning technological adoption with bank-specific factors.