Innovation and Human Capital as Drivers of Global FinTech Development: Evidence from 217 Countries Using System GMM

Abstract

The rapid expansion of financial technology (fintech) is reshaping global financial systems, yet the institutional and structural determinants driving this growth remain uneven across countries. This study investigates how regulatory quality, digital infrastructure, financial literacy, and urbanization influence fintech development across 217 countries from 2001 to 2023, using an unbalanced panel of 4,774 observations. Employing a dynamic two-step System GMM estimator, the analysis addresses endogeneity, unobserved heterogeneity, and persistence in fintech outcomes. The findings reveal that stronger regulatory quality (β = 0.133, p < 0.01), greater digital infrastructure—proxied by fixed broadband subscriptions (β = 0.095, p < 0.01)—and higher economic development (β = 0.177, p < 0.01) significantly enhance fintech development. Innovation capability, measured through high-technology exports, mediates the effect of these enabling conditions, demonstrating that countries with stronger innovation ecosystems translate institutional and technological strengths into more advanced fintech systems. Additionally, higher internet usage significantly reduces reliance on physical bank branches (β = –0.074, p < 0.01), indicating a digital substitution effect. The results emphasize that fintech growth is not only driven by external enablers but also depends critically on internal capabilities and human capital. The study offers actionable insights for policymakers, highlighting the need to strengthen regulatory effectiveness, expand digital infrastructure, and invest in innovation and human capital to foster inclusive and sustainable fintech ecosystems, particularly in emerging economies.