FinTech adoption and financial inclusion: Evidence from household consumption in China

This paper provides micro-level evidence on how FinTech adoption affects household consumption and consumption inequality. Our hypothesis is that through FinTech's payment facilitation and credit con-straint alleviation, higher FinTech adoption by households fosters financial inclusion by promoting con-sumption. Financial inclusion is especially increased for households that traditionally consumed less, which suggests that FinTech could reduce consumption inequality. By combining region-level FinTech adoption measures with household-level representative data of consumption, we find that higher Fin -Tech adoption by a household increases household consumption and reduces consumption inequality across households. Using the distance to Hangzhou from the city in which a household is located as an instrument variable to capture the exogenous variation in FinTech adoption yields results with similar economic and statistical significance. In addition, traditional financial infrastructure is still a prerequisite for the benign distributive impacts provided by FinTech credit, which demonstrates the need for further welfare-improving policies. Our paper adds to the literature by documenting FinTech to be a market force that contributes to financial inclusion.(c) 2022 Elsevier B.V. All rights reserved.