Abstract
Advances in information and communication technology (ICT) have provided a platform for the introduction and diffusion of a range of financial technologies that have transformed the financial sector. This study analyses the diffusion of financial technology (fintech) and its interaction with financial inclusion and living standards (GDP per capita). We consider the determinants and effects of technology diffusion in financial services and identify two possible transmission mechanisms from the financial sector to GDP per capita – a fintech diffusion channel and a financial inclusion channel. We specify the interactions between these two channels and their relationship with income per capita. Our empirical analysis focuses on the diffusion of two enabling fintech innovations: ATMs and associated digital networks; and mobile phones and payments systems. The relationships between fintech diffusion, financial inclusion and GDP per capita are estimated using a panel data set for up to 137 countries over the period 1991–2015 using both cross section and panel techniques, including an error correction model that distinguishes short- and long-run effects. A key finding is that fintech diffusion and financial inclusion have long-run effects on GDP per capita over and above their short-run impact and the effects of investment in fixed and human capital.
Highlights
The financial sector has experienced something of a technological revolution over recent decades as information and communication technology (ICT) platforms have facilitated the diffusion of an array of financial technologies from automated teller machines (ATMs) and associated digital networks, mobile payments systems, mobile wallets online banking, automated credit scoring techniques and block-chain technologies
To gauge the robustness of our findings we extend the analysis by 3-stage least squares to capture simultaneous effects between our three variables – fintech diffusion, financial inclusion and GDP per capita and panel data regressions to distinguish short run and long run effects
We find that the diffusion of mobile phones is related to financial inclusion, one important question is the effectiveness of ICT diffusion, that is the number of years of ICT adoption a country needs before there are sustained effects on financial inclusion
Summary
The financial sector has experienced something of a technological revolution over recent decades as information and communication technology (ICT) platforms have facilitated the diffusion of an array of financial technologies (fintech) from automated teller machines (ATMs) and associated digital networks, mobile payments systems, mobile wallets online banking, automated credit scoring techniques (robo advisers) and block-chain technologies. It is only recently that the term fintech has slipped into common usage, the emergence of fintech has its roots in the development of ATM networks in the 1980s and 1990s. Digital networks provide a technological platform on which to expand the reach of financial service providers, increasing financial inclusion (Batiz-Lazo 2018), mobilising savings and enhancing both the extent and allocation of investment in the wider economy Financial technologies, such as, mobile phones, money and payments systems, may ‘enable developing countries to “leapfrog” to more efficient and modern economic systems’ (Lashitew, van Tulder, and Liasses 2019, 1201), promoting convergence across countries. The final section of the paper draws a number of conclusions for policy makers and identifies areas for further research
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