Upstarts vs incumbents: the interaction between fintech credit and bank lending in Sub-Saharan Africa

Abstract

This study analyzes how fintech credit affects bank lending in Sub-Saharan Africa (SSA) and how this relationship is influenced by financial inclusion measured by bank branch networks. We utilized the system GMM to examine data spanning 19 SSA economies from 2013 to 2019. This study finds that fintech credit has a mixed effect on bank lending in SSA, depending on how it is measured. When fintech is measured by total alternative credit (fintech and Bigtech credit), there is a negative and significant relationship between Fintech and bank lending in SSA economies, suggesting that some borrowers are shifting towards fintech options. However, we observe a positive and significant relationship when we focus solely on fintech credit, suggesting that fintech can complement traditional bank lending, potentially by expanding access to financial services. Furthermore, this study underscores the importance of the presence of physical banks. Fintech lending growth has a negative net effect on bank lending when traditional banks reduce their branch network. This suggests that physical branches remain crucial for financial inclusion, particularly in areas with a limited digital infrastructure. These insights offer valuable guidance for policymakers and industry leaders seeking to promote financial inclusion and stability in SSA’s evolving financial landscape.

Keywords

• Fintech credit
• Bigtech credit
• bank lending
• financial inclusion
• Sub-Saharan Africa
• system GMM