Sustainable Economic Growth for Developing Countries through Fintech Ecosystem: A Case Study on Bangladesh

Abstract

This study undertook a detailed investigation of financial technology (fintech) and its role in promoting sustainable economic growth for developing countries. In doing so, Bangladesh was the focal point. Through methods, both quantitative and qualitative this research aimed to answer four key questions related to fintech ecosystem readiness, customer readiness for fintech, fintech adoption factors, and fintech for sustainable economic development. The current study investigated the state of the fintech ecosystem in Bangladesh and its readiness with regard to ecosystem players. Narrative analysis, global comparison, and expert panel opinion point to a lack of fintech service and business model diversity in the still-developing fintech ecosystem of Bangladesh. It is found that Bangladesh is in the second stage of a three-step ecosystem development process. With a prudent, time-appropriate, and transparent policy framework, we believe that the fintech ecosystem in Bangladesh can contribute to sustainable development in the long-term. Apart from secondary datasets, this study conducts the National Citizen Survey (NCS) (N=1282). The nationwide representative sample was constructed through poverty-based stratified random sampling. Data were collected from 16 districts across Bangladesh. The NCS dataset provided the foundation for descriptive analysis and quantitative modeling. It incorporated demographic, economic, financial, technology usage, sentiment, and other variables related to fintech use. To the best of our knowledge, such a representative dataset on overall fintech use in Bangladesh is a first. This study also proposes the Customer Fintech Readiness (CFR) index to measure overall customer readiness for innovative fintech use. Given the hitherto absence of a measurement scheme for fintech readiness – as opposed to generic technology readiness, the CFR index considers seven key dimensions of customer readiness for fintech use and offers a customer fintech readiness measurement scheme. It has been found that Bangladesh is in the 26 th percentile of customer fintech readiness – lagging significantly behind in multiple dimensions e.g., financial conditions, existing fintech usage, etc. This study also deploys Recursive Feature Elimination (RFE) with multivariate logistic regression to model adoption factors of fintech. Among 133 features in the original model, 55 were preserved. Of these, 26 are found to be significant as determinants of fintech adoption. Importantly, 14 of these are related to customer concerns with various aspects of fintech use. Thus, customer concerns are major factors of fintech adoption in Bangladesh. Therefore, an effective way to raise adoption in the future is to address concerns and build customer trust. Finally, this study adopts the Case method, panel data regression, and univariate analyses with quartile-comparison to investigate the relationship between fintech and sustainable economic development. Across these three approaches, fintech’s contribution to sustainable economic development was evident. Particularly, our panel data model suggests that fintech channels like Automated Teller Machines (ATM) and debit card usage growth directly contribute to macro-level economic growth. More importantly, results from univariate analyses suggest that countries with higher growth in fintech channels e.g., debit card ownership, mobile money, digital payments, and wage distribution through cards also experienced higher growth in SDG index score, Goal 1, Goal 8, Goal 9, and Goal 11 scores during the period from 2014 to 2021. However, there were important nuances in results across these goals and between the two panels used: (a) all countries and (b) lower middle-income countries (LMIC) only. For LMIC, debit card ownership and digital payment showed the most significant association with progress in selected indicators. Further, univariate results point to a surprising lack of association of fintech with promotion of gender equality – thereby leading to further questions on effective ways to realize fintech’s transformative potential for women. We hope that the recommendations suggested in this report will contribute to the development of a more dynamic and vibrant ecosystem for sustainable economic growth in Bangladesh – and in developing countries across the world.