Bridging the Gap? FinTech and Financial Inclusion

Abstract

The rise of FinTech lenders offers an opportunity to promote financial access but may disrupt banks’ banking efforts. This paper presents a banking model where an incumbent bank specializes in certain niche markets. When a FinTech lender enters, competition intensifies, reducing the bank’s gains from serving some of its niches. Although FinTech lending can help serve certain unattended niches, the bank may abandon others, creating an ambiguous impact on financial inclusion. Financial inclusion may even decline when the FinTech lender is less efficient at serving new niches and better able to compete with the bank for its customers.

Keywords: FinTech, Financial inclusion, Soft information, Regulatory arbitrage, Economic growth

JEL Classification: G21, G23, G28