Digital and Economic Inclusion: How Internet Adoption Impacts Banking Status

Abstract

Financial technology (fintech), including mobile money services, peer-to-peer lending, and mobile insurance is promised as a means to economic inclusion for the un(der)banked. These online financial services, however, require Internet access, adoption, and digital literacy. Given the important interdependencies between banking and Internet adoption in the United States, this paper merges datasets from FDIC’s June 2015 Unbanked and Underbanked survey and NTIA’s July 2015 Computer and Internet Use survey to study the issue more closely. While the process of merging CPS supplements at the household level is fairly straightforward, treating sampling weights and variance raises some complications. Our paper proposes a methodology for merging CPS supplements and addressing these issues.

The merged dataset shows a strong relationship between the un(der)banked and the level of Internet activity, as measured both through the type of Internet service(s) used and the types of devices used by the household. For example, nearly half (47 percent) of unbanked households do not have a fixed or mobile Internet connection. Likewise, while less than 40 percent of the unbanked households rely on multiple types of devices, roughly 75 percent of the underbanked and banked households use multiple types of devices. Results suggest that, to successfully expand financial inclusion in the US, fintech could require Internet access, adoption, and digital literacy training.

Keywords: Broadband, Internet, Internet Adoption, Unbanked, Underbanked, FinTech, Survey, CPS

JEL Classification: A10, C20, C83