Artificial Intelligence, Fintech adoption and financial stability: An analysis of the conventional banking sector of OIC countries

Abstract

In recent literature on financial economics, the integration of Artificial Intelligence (AI) and Financial Technology (Fintech) is being discussed as a means to achieve economic and financial stability. Our analysis is based on the development of FinTech and AI to achieve financial stability, which can further lead to economic stability. We have used structural equation modelling to examine the direct and indirect impacts of AI and FinTech on financial stability, with financial stability also acting as a mediator between AI and FinTech toward economic growth. We use data from selected OIC countries, and the sample set includes the conventional banking sector. Based on early-stage data, we see that it has been no more than 4 to 5 years since AI was introduced into the global arena, particularly in developing countries and multiple sectors. However, adoption comes with multiple challenges, causes, and risks, especially in the initial phases, which may have a negative impact on financial stability. Similarly, FinTech might harm financial stability in the conventional banking system, as AI adoption is currently in its early stages. Yet, AI and FinTech present a very interesting mode for studying the joint impact on economic growth, as they appear to be key components toward achieving financial stability and improving the functioning of conventional banking. The policies arising from the study indicate that in the initial phases, AI adoption is being carried out in multiple conventional banks in OIC countries, although its impact remains negative due to costs and risks.