Abstract: Digital transformation is an inevitable choice for banks’ high-quality growth, but it can also trigger a series of inequalities. By making use of the data of 208 commercial banks in China from 2010 to 2021, this paper examines the Matthew effect and its intrinsic mechanism in the bank digital transformation from the perspective of business performance. The results show that the relationship between bank digital transformation and business performance manifests itself first as the digital paradox and then as the financial enhancement, with an overall U-curve relationship. There is a clear Matthew effect in the digital transformation of large and small banks. As banks increase in size, the turning point of the U-shaped curve of the relationship between digital transformation and business performance shifts to the left, indicating that large-scale banks require lower degree digital transformation to achieve financial enhancement compared to small-scale banks. The mechanism analysis shows that bank digital transformation has an inverted U-shaped and U-shaped relationship with operating costs and operating revenues respectively, and the turning point of the curves shift to the left as the size of the bank increases, leading to a nonlinear impact of bank digital transformation on business performance and the Matthew effect in the digital transformation of large and small banks. Further discussion reveals that the Matthew effect of bank digital transformation is also reflected at the level of operational risks. Compared to small-scale banks, digital transformation is more beneficial for large-scale banks to reduce operational risks. Therefore, it is recommended that while accelerating the digital transformation of banks, we should focus on mitigating the Matthew effect, fully release the dividends of digital development, and improve the quality and efficiency of financial services to the real economy.

Key words: financial technology, digital transformation, business performance, Matthew effect, bank size