Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development point out that it is necessary to promote the efficient allocation of various factor resources, and establish and improve a unified urban-rural construction land market, a capital market with complete functions, a labor market with smooth mobility, and a technology market with efficient transformation. As one of the most important factors of production, there is a structural mismatch in China’s capital market, and innovative financial products and services are the effective carriers of smoothing capital flow. Relying on cloud computing, big data, blockchain, artificial intelligence and other digital technologies, fintech applies advanced means to the whole process of financial services, creates business models, applications and products different from traditional finance, and realizes the innovation and upgrading of financial business. Under the realistic demand of transforming the mode of economic development, it is significant to explore the relationship between fintech and capital mismatch to optimize resource allocation and build a new development pattern. Although the literature has sought to improve resource allocation from the perspective of financial development, there is little literature that directly incorporates fintech and capital mismatch into the same analytical framework, and because of the technology-driven attributes of fintech, its effect imposes requirements on capital conditions. So, this paper searches Baidu’s webpage through the keywords of “city+year+fintech”， measures the level of fintech in the city-year with the total number of search result pages, measures the capital mismatch index based on the C-D production function, and utilizes panel data of 283 prefectural-level cities in the period of 2005-2021, and uses the models of two-way fixed effect and instrumental variables to explore the effect of fintech on capital mismatch and its functioning mechanism under the situation of over-allocation and under-allocation of capital, respectively. It is found that when capital is over-allocated, fintech can improve the degree of over-allocation, i.e. there is the phenomenon of sending charcoal in snow, and when capital is under-allocated, fintech worsens the degree of under-allocation, i.e. there is the phenomenon of adding frost to snow, and this conclusion still holds after the endogeneity treatment and a series of robustness tests. Heterogeneity analysis shows that there is heterogeneity in the role of fintech in influencing capital mismatch based on the labor allocation situation, which is mainly reflected in the fact that when capital is over-allocated, fintech has a more significant improving effect on labor under-allocated areas. Mechanism analysis shows that financial upgrading effect, innovation environment effect and government governance effect play a moderating role in the process of fintech affecting capital mismatch. Based on this, we suggest promoting the application of fintech in the capital market, especially focusing on the problem of disliking the poor and liking the rich, and giving play to the value of fintech’s inclusive services; upgrading fintech’s ability to support innovation, better serving scientific and technological innovation, and enhancing the sustainability of fintech’s development; reviewing the role of the government, reducing unreasonable government intervention, and promoting the healthy development of fintech, so as to optimize the allocation of regional capital and achieve high-quality economic development.