The role of fintech adoption and digital financial literacy in shaping financial development: A global panel data approach

Fintech adoption accelerated due to the 2007–2008 financial crisis and the COVID-19 pandemic. However, high financial illiteracy hinders effective decision-making and elevates crisis vulnerability, possibly worsening financial issues despite innovation. Theoretical frameworks support this, but global empirical analysis is limited. Addressing this research gap, the study aims to examine the impact of Fintech adoption (FA) and digital financial literacy (DFL) on financial development (FD), using panel data from 118 countries (79 developed and 39 developing) spanning the period from 2004 to 2022. Employing the System-Generalized Method of Moments (GMM) and Two-Way Least Squares (2SLS) estimators, the study explores both linear and nonlinear dynamics, as well as the moderating role of DFL. The results show that a one-unit increase in FA raises FD by 0.16 points on average, with stronger effects in developing countries. In developed economies, the relationship follows an inverted U-shape, peaking at an optimal Fintech index value of 2.65, beyond which marginal benefits decline. In contrast, developing economies exhibit a continuously increasing effect. Moreover, DFL significantly enhances the FA–FD relationship, especially in low-literacy contexts, indicating a strong synergistic effect. These findings offer new cross-country empirical evidence on the differentiated roles of Fintech and DFL in financial development across development levels.