Does FinTech enhance the effectiveness of financial inclusion to reduce income inequality? Evidence from Sub-Saharan Africa

PurposeThe research aims to achieve three goals. First, it examines the effect of FinTech on income inequality in SSA. Second, it assesses the effect of financial inclusion on income inequality in SSA. Lastly, it analyzes whether FinTech enhances the effectiveness of financial inclusion in reducing income inequality in SSA.Design/methodology/approachThe study adopts robust econometric techniques such as the traditional ordinary least square (OLS) estimation technique, the two-step system GMM, the Driscoll-Kraay covariance matrix estimator and the PVAR Granger causality model. The two-step GMM helps us to address endogeneity and simultaneity issues and small sample bias inherent in dynamic panel models. Similarly, the Driscoll-Kraay covariance matrix estimator addresses panel data's potential cross-sectional, temporal and spatial dependence.FindingsThe study finds that FinTech does not directly engender a reduction in income inequality. Similarly, the study shows that financial inclusion may not directly facilitate a reduction in income inequality. However, we find that FinTech pushes financial inclusion to engender a reduction in income inequality in SSA. Further, the results show that FinTech Granger causes financial inclusion in SSA. Lastly, we find that technology infrastructure (captured by mobile cellular subscription and the share of the population with internet access) and the level of education (proxied by mean years of schooling) are important channels through which FinTech pushes financial inclusion to reduce income inequality. The research and policy implications are discussed.Originality/valueThe study investigated the efficacy of FinTech in deepening financial inclusion and reducing income inequality in SSA.