REVISITING THE DETERMINANTS OF FINANCIAL INCLUSION IN THE DIGITAL ERA: EVIDENCE FROM LATIN AMERICAN COUNTRIES

Abstract

The advent of the Internet, coupled with rapid adoption of smartphones has accelerated the use of digital banking, compelling financial institutions worldwide to integrate digital innovation into their product offerings. However, this adoption has not translated into a proportional increase in financial inclusion among Latin American countries. This study investigates the relationship between digital banking, digital infrastructure, and financial inclusion in Latin America, using data from 2017 and 2021. The study employed descriptive statistics, correlation analysis and Granger causality tests to analyze the data. Purposive sampling techniques was used to seven (7) Latin American which include Brazil, Colombia, Costa Rica, Ecuador, Paraguay, Peru, and Uruguay. The results reveal that financial inclusion is positively correlated with digital payment usage (r = 0.838, p < 0.05), online purchases (r = 0.842, p < 0.05), online bill payment (r = 0.779, p < 0.05), and internet usage (r = 0.795, p < 0.05), all statistically significant at the 5% level. However, mobile subscriptions exhibited a weak and statistically insignificant correlation (r = 0.175, p > 0.05). Granger causality analysis confirmed a bidirectional causality between financial inclusion and all digital indicators, showing a mutually reinforcing relationship. This study concludes that digital payment usage, online purchases, online bill payment, mobile subscriptions and internet usage can explain financial inclusion in Latin America. This study, therefore, recommends that policymakers should implement policies that aimed at reducing the cost of internet access, particularly in rural and underserved areas. These will not only bridge the digital divide but also expand access to formal financial services in Latin America.