What drives fintech adoption in countries

Financial technology is quickly becoming an integral part of the global financial system, but fintech adoption within countries varies significantly. New research suggests that factors like the unmet demand for financial services and demographics can explain the differences in adoption.

Cross-country data is patchy. So, Jon Frost from the Bank for International Settlements (BIS) uses data from the World Bank, International Monetary Fund and other market research to compare fintech adoption in countries. He finds it varies not just in the level of adoption but how it is adopted within financial services. For instance, credit platforms have achieved economically significant scale in the US and the UK. But in emerging and developing economies like India and Bangladesh, it is mobile payments that have picked up. China has made significant progress in fintech credit and mobile payments.

While the fintech market might be larger in richer nations, it is of more importance in developing economies as it caters to populations without access to banks. Fintech adoption has been propelled by an unmet demand for financial services and mobile payments have offered a platform for basic banking services. It has also become important by making cross-border transfers of remittances cheaper. Trust in technology among the youth would mean nations with younger population see higher fintech activity.

It has important implications for economies and their growth as it can enhance financial inclusion in developing nations, address market failures in financial systems and improve cross-border financial integration. But, it faces risks like market shocks across institutions, monopoly by big fintech firms and speculative bubbles of financial assets. All of which will need to be addressed by regulation, the author suggests.