Fintech adoption during epidemics depends on pre-existing inequalities
The Covid-19 pandemic has increased remote working, online shopping and telehealth, with significant differences between socio-economic groups in their ability to use these new technologies. Orkun Saka, Barry Eichengreen and Cevat Giray Aksoy Investigate past epidemics and find that they dramatically increase the likelihood of people doing their banking transactions using the Internet, mobile banking and automated teller machines (ATMs). But inequalities play a role. People who already have internet coverage are more likely to turn to online banking services during an outbreak.
Epidemics are frequently cited as inducing changes in economic behavior and accelerating technological and behavioral trends. The Black Death, the mother of all epidemics, is believed to accelerate the adoption of earlier capital-intensive agricultural technologies such as the heavy plow and the water mill by inducing the substitution of capital by labor. more expensive work. The Covid-19, to take a slightly more recent example, would have increased remote working, online shopping and telehealth.
But there can be significant differences between socio-economic groups in the ability to use these new technologies. High-tech workers and workers in the liberal professions were better able to switch to remote work, compared to store clerks, guards and other lower paid people. Women had more difficulties than men capitalize on remote work opportunities, given the trades in which they are specialized. People over 65, being less technologically adaptable, find that More difficult adapt to new working methods.
Small businesses with limited technology capabilities have been less able to adapt their business models and remain competitive than their larger rivals, while residents of limited broadband areas have experienced less range to switch to remote work, distance education and telehealth. Covid-19, it is said, has accelerated current trends. If the growing prevalence of the so-called digital divide was a continuing trend before Covid-19, then the pandemic may have accelerated this one in particular.
The case of fintech
In one new paper, we are exploring these questions in the context of fintech adoption. More specifically, we ask whether past epidemics have led to a shift towards new financial technologies such as online banking and the abandonment of traditional bank branches. Online and mobile banking is a particularly informative context for studying the larger question of whether past epidemics have led to the adoption of new technologies and, if so, by whom and where.
Individuals have been using their computers and smartphones for banking applications for years. People in a variety of countries and different contexts have banking options available that involve both face-to-face contact (such as banking through cashiers at bank branches of a type that can be problematic during an outbreak) and digital alternatives (such as internet banking or a mobile phone app); these alternatives have been available for some time.
In contrast, similar telehealth studies would face the barrier that physician offices in many countries and settings did not, at the time of epidemic exposure, have the capacity to provide such services remotely. Likewise, studies of distance education in the context of past epidemics would be limited by the fact that few schools and homes had flexible videoconferencing technology, such as Zoom, let alone the Internet. reliable necessary for its operation.
We combine data on epidemics around the world with nationally representative Global Findex surveys of individual financial behavior conducted in over 140 countries in 2011, 2014 and 2017. What is new is our ability to match every individual in the world. ‘Global Findex dataset to detailed background information about the same person in the Gallup Global Surveys. This allows us to control socio-economic factors at the most granular level possible.
Figure 1: The impact of an epidemic on FinTech adoption
Source: Saka, Eichengreen and Aksoy (2021). Remarks: The results use Findex-Gallup sampling weights and the robust standard errors are pooled at the country level. Estimates are presented with 95% confidence intervals.
By maintaining the economic and demographic characteristics at the individual level and the fixed effects of country and year, we find that contemporary exposure to the epidemic significantly increases the likelihood of individuals transacting through the internet and mobile bank accounts. , make online payments via the Internet, and perform account transactions using an ATM instead of a bank branch. The separate impacts on ATM and branch transactions are almost exactly offset (see Figure 1).
This suggests that exposure to the epidemic primarily affects the form of banking activity – digital or in person – without also increasing or reducing its volume or extent. While the limited time period covered by our data only allows for a provisional analysis of persistence, our results suggest that the impact of epidemic exposure is primarily felt in the short term rather than sustained over time.
Using a machine learning algorithm, we then identify the critical dimensions of the heterogeneity of our therapeutic effects. These are individual income, employment and age. In other words, it is mainly young, high-income earners with full-time jobs who conduct online / mobile transactions in response to epidemics. These models are consistent with Previous search on early adopters of other digital technologies.
The role of the digital divide
We further highlight the importance of the digital divide by studying the role of local internet infrastructure in shaping the transition to online banking. We match the 1 km by 1 km time varying data on the global 3G Internet coverage of Collins Bartholomew’s mobile coverage explorer to the subnational region in which each individual is located. These data are presented in Figure 2.
Figure 2: 3G mobile coverage and its extension
Source: Saka, Eichengreen and Aksoy (2021). To note: Figures show 3G mobile internet signal coverage at a network level of 1 per 1 kilometer.
We are finding that people with better ex ante internet coverage are more likely to turn to online banking in response to an outbreak. This result still applies when we use a specification with country-by-year fixed effects that absorb all types of country-level variation in our sample, including the incidence of epidemics. Importantly, we find no consistent effect for 2G coverage when this variable is included in the estimate alongside our 3G measure, confirming our intuition that the technology relevant to the outbreak response is internet related. and not the global mobile phone. use.
In summary, we find strong evidence of epidemic-induced changes in economic and financial behavior, of differences in the extent of these changes by more or less economically advantaged individuals, and of a role for IT infrastructure. in the dissemination or limitation of the advantages of technological alternatives. . The results thus highlight both the behavioral response to epidemics and the digital divide.
For more information, see the authors accompanying paper
Note: This article first appeared on our partner site, LSE Business Review. It gives the point of view of the authors, and not the position of the Bank of Italy, of EUROPP – European Politics and Policy or of the London School of Economics. Featured Image Credit: Pickawood on Unsplash