Fintech and Income Inequality: Evidence Based on Adoption of Digital Financial Services

Abstract

Using a novel dataset of microbusiness owners from China for the period 2017-2019, we investigate how fintech adoption affects income inequality faced by seniors and females. Our results show that microbusiness owners belonging to the two disadvantaged groups are less likely to adopt value-enhancing fintech. However, once they adopt it, they experience a greater increase in their business revenue than members of non-disadvantaged groups. The impact of fintech adoption on income inequality is more pronounced in locations with high discrimination. Additional evidence suggests that fintech is helpful in improving cash management, easing financing constraints, and advancing management capability for the disadvantaged groups. Overall, our results lend support to the notion that fintech helps to level the playground for disadvantaged individuals and highlight the importance of government policies that encourage the individuals’ adoption of fintech.

Keywords: Fintech Adoption; Microbusiness; Income Inequality; Disadvantaged Groups; Social Discrimination