Does digital financial inclusion affect inequality?

Abstract

Digitalization has influenced the development of financial services. The rise of financial technology or FinTech allows more access for wider group of people to benefit financially. More access to financial services also increases the financial inclusion. This paper attempts to study on how digital financial inclusion have an effect to income inequality. In this research, we used panel data analysis with fixed‐effect model to estimate the effect. Sample data utilized 7 high‐income countries, 23 middle‐income countries, and 1 low‐income countries from 2011‐2018. The empirical study provides results that every 1 percent increase in mobile cellular subscriptions decreases the Gini coefficient by 4.64 percentage points. Meanwhile, every 1 percent increase of digital financial inclusion tends to increase Gini coefficient by 0.51 percentage points more in middle and low‐income countries. While every 1 percent increase of number of mobile and internet banking transactions in high‐income countries decreases the Gini coefficient by 0.37 percentage points. The study concluded that, as suggested by Kuznets curve, digital financial inclusion increases the income inequality in the country which is in the early stage of development, and decreases the income inequality of the country which is in the mature stage of development.