Determinants of Fintech and Bigtech lending: the role of financial inclusion and financial development

Ozili, Peterson K (2023): Determinants of Fintech and Bigtech lending: the role of financial inclusion and financial development. Forthcoming in:

Abstract

Credit markets around the world are undergoing digital transformation which has led to the rise in Fintech and Bigtech lending. Fintech and Bigtech lending is the provision of credit by Fintech and Bigtech providers who have more capital, cutting-edge IT systems, worldwide recognition, greater online presence and are able to handle more big data on computers and mobile phones than traditional banks. Fintech and Bigtech lending is growing in importance, but the determinants of Fintech and Bigtech lending have received little attention in the literature. This study investigates the determinants of Fintech and Bigtech lending. The study focused on the effect of financial inclusion and financial development on Fintech and Bigtech lending. Using data for 18 countries from 2013 to 2019 and employing the difference-GMM and 2SLS regression methods, the findings reveal that financial inclusion and financial development are significant determinants of Fintech and Bigtech lending. Financial development is a positive determinant of Fintech and Bigtech lending while financial inclusion has a significant effect on Fintech and Bigtech lending. Also, Fintech and Bigtech lending lead to greater banking sector stability and also poses the risk of rising nonperforming loans. There is also a significant positive correlation between financial development and Fintech and Bigtech lending. These findings add to the emerging literature on the role of Fintech and Bigtech in financial intermediation. This research is significant because it provides insights into the role of financial inclusion and financial development in digital transformation of credit markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: financial inclusion, financial development, Fintech, Bigtech, lending, ATM, bank branch, access to finance
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

References

Achieng, O. C., Karani, K. P., & Tabitha, N. (2015). Financial innovation and the future of financial intermediation. International Journal of Education and Research, 3(5), 385-396.

Agarwal, S., & Zhang, J. (2020). FinTech, lending and payment innovation: A review. Asia‐Pacific Journal of Financial Studies, 49(3), 353-367.

Arslanian, H., & Fischer, F. (2019). The rise of Fintech. In The Future of Finance (pp. 25-56). Palgrave Macmillan, Cham.

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277-297.

Arner, D. W., Buckley, R. P., & Zetzsche, D. A. (2018). Fintech for financial inclusion: A framework for digital financial transformation. UNSW Law Research Paper, No. 87.

Baber, H. (2019). Financial inclusion and FinTech: A comparative study of countries following Islamic finance and conventional finance. Qualitative Research in Financial Markets, Vol. 12 No. 1, pp. 24-42.

Bains, P., Sugimoto, N., & Wilson, C. (2022). BigTech in Financial Services: Regulatory Approaches and Architecture. FinTech Notes, No. 2.

Balyuk, T., Berger, A. N., & Hackney, J. (2020). What is fueling FinTech lending? The role of banking market structure. The Role of Banking Market Structure (June 23, 2020). Available at SSRN: https://ssrn.com/abstract=3633907

Barkley, B., & Schweitzer, M. E. (2020). The rise of Fintech lending to small businesses: Businesses’ perspectives on borrowing. FRB of Cleveland Working Paper No. 20-11

Beck, T. (2020). Fintech and financial inclusion: Opportunities and pitfalls (No. 1165). ADBI Working Paper Series.

Berg, T., Fuster, A., & Puri, M. (2022). Fintech lending. Annual Review of Financial Economics, 14, 187-207.

Blake, D. (1996). Financial intermediation and financial innovation in a characteristics framework. Scottish Journal of Political Economy, 43(1), 16-31.

Chapple, K., & Jeon, J. S. (2021). Big tech on the block: examining the impact of tech campuses on local housing markets in the San Francisco Bay area. Economic Development Quarterly, 35(4), 351-369.

Chinoda, T., & Mashamba, T. (2021). Fintech, financial inclusion and income inequality nexus in Africa. Cogent Economics & Finance, 9(1), 1986926.