FinTech Disruption, Retail Banking Dynamics, and Digital Financial Assets: A Volatility Spillover and Risk-Adjusted Performance Analysis

Abstract

This study examines whether financial technology firms transmit or absorb volatility between digital financial assets and traditional retail banking. Existing research treats these domains separately, comparing FinTech with incumbent banks or cryptocurrencies with equities, leaving the three-way structure unexamined. Using 1,321 aligned daily returns from Coinbase's April 2021 listing to July 2026, a balanced tripartite panel is constructed from two FinTech firms, two retail banks, and two digital assets, benchmarked against the S&P 500. Bitcoin's 24-hour calendar is reconciled with equity trading through log-return accumulation, folding 602 weekend sessions into the following trading day and preserving realised variance that truncation would discard. Volatility connectedness is estimated on model-free Garman-Klass realized volatility rather than on fitted GARCH variances, which avoids the generated-regressor fragility that a proxy robustness check shows can otherwise reverse the headline results. Three formal hypotheses were tested. The null of no structural trend in FinTech systematic risk is rejected since Newey-West trend regressions on rolling betas return probability values below .001 for both the platforms. The null hypothesis of no volatility contagion into retail banking is rejected on a stationary panel, yielding a total spillover index of 48.18 per cent, with banking drawing 20.33 per cent of its forecast error variance through FinTech against 3.75 per cent directly from digital assets. The null hypothesis that the intermediary role does not reverse across macro-financial regimes cannot be rejected because FinTech remains a net transmitter in the boom, tightening cycle, and banking crisis alike. Therefore, FinTech operates as a stable amplifying conduit rather than a cushion, transmitting structural repricing at horizons that a daily monitoring dashboard is least able to observe. Risk-adjusted performance inverts the disruption narrative: retail banking returned 15.83 per cent annually against minus 23.18 per cent for fintech. Perimeter regulation should treat FinTech as a systemic-transmission node.