Riding the FinTech innovation wave: how did the post-COVID-19 pandemic change the game?

This study examines how the role of FinTech in enhancing bank performance evolved following the COVID-19 pandemic by comparing pre- and post-pandemic dynamics in the United Arab Emirates banking sector. Moving beyond the conventional treatment of FinTech as a homogeneous construct, this study conceptualizes FinTech as a dual-dimensional strategic capability by distinguishing between Internal FinTech Capability (IFC), represented by ICT investments, and External FinTech Capability (EFC), reflected in digital partnerships. The study investigates whether these two dimensions of FinTech moderate the effects of financial innovation, ESG sustainability, and bank digitalization on bank performance. Using an unbalanced panel of 50 UAE banks over the period 2015–2024, divided into pre-COVID-19 (2015–2019) and post-COVID-19 (2020–2024) periods, the study employs the one-step system Generalized Method of Moments to address dynamic endogeneity and unobserved heterogeneity. The findings reveal that both IFC and EFC significantly strengthen the positive effects of financial innovation, ESG sustainability, and digitalization on bank performance. However, IFC consistently exhibits a stronger moderating effect than EFC, indicating that internally developed digital capabilities exhibit stronger moderating effects than externally sourced digital partnerships. Furthermore, these moderating effects become substantially stronger in the post-pandemic period, suggesting that COVID-19 accelerated the strategic importance of firm-specific digital capabilities for organizational resilience and sustainable performance. The study contributes to the FinTech literature by introducing a dual-dimensional conceptualization of FinTech and demonstrating that internal FinTech capability exhibits a stronger moderating role than external FinTech capability in enhancing bank performance, particularly in the post-COVID-19 era. These findings provide practical guidance for bank managers and policymakers seeking to prioritize digital investment strategies and foster sustainable digital transformation.