Abstract:
Recent innovations in digital financial technologies (FinTech) have called into question the role of FinTech in financial development. This study examines FinTech's direct and conditional effects on financial development using data from emerging and developing economies. Three measures of financial development (broad money, Private credit, and bank deposits) and two conditional factors (financial performance and financial inclusion) were investigated vis-à-vis FinTech penetration. This paper demonstrates that FinTech penetration not only drives financial development but also strongly impacts the financial development of countries with weak financial sector performance and low financial inclusion. These findings have several policy implications: (1) countries with weak financial sector performance could leverage FinTech to improve financial development, and (2) appropriate policies on FinTech development can drive digital financial inclusion, financial deepening, and consequently economic growth.
