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

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.This study investigates the impact of credit provided by fintech players on lending activities of traditional banks and the moderating effect of financial inclusion proxied by bank branch density on this nexus. Using data from 19 sub-Saharan African economies and GMM for estimation, the study identified a mixed effect of fintech on bank lending. When fintech is measured by total alternative credit (fintech and Bigtech) the results show that fintech tends to reduce bank lending, suggesting that some borrowers are shifting towards fintech products potentially competing with traditional banks. However, fintech credit alone show a positive effect, suggesting a complimentary effect of fintech activities to enhance financial access. The study also shows that fintech lending negatively affects bank lending when banks reduce branch networks, emphasizing the importance of continued physical bank branches. Overall, this research highlights the complex interplay between fintech and traditional banking in Sub-Saharan Africa, providing valuable insights for policymakers and industry leaders seeking to promote financial inclusion and stability in the region.