FinTech Based Financial Inclusion and its Impact on the Performance of Banking Sector: Empirical Evidence from Pakistan

Abstract

The purpose of this study is to provide an index for FinTech Development in Pakistan and to measure its effect on Pakistan's banking sector. Fin Tech is considered as a vital tool for financial inclusion but Pakistan has no robust means for measuring Fin Tech leading to lack of research in this field despite digital means being adopted widespread across the world. The data was gathered for a period of 10 years ranging from 2012 to 2021 and two-step Principal Component Analysis was used to develop the Fin Tech index. CAMEL analysis and a two-step dynamic GMM technique was used to measure the variables under study. Results indicate that FinTech experienced an initial boom in the early years of 2012 and witnessed a large resurgence in recent years possibly due to the Covid-19 pandemic. The impact of FinTech development on the banking sector is mostly positive with reference to asset quality, management efficiency, liquidity as well as earning power of banks. This study provides means for future research in this field as it is becoming quite apparent that the future is digital and in order to adapt, we must know how exactly various areas of our economy are impacted by this digitalization.