The impact of FinTech innovation on digital financial literacy in Europe: Insights from the banking industry

Within the evolving financial landscape characterised by the proliferation of FinTech and exacerbated by the Covid-19 pandemic, this paper investigates the unexplored relationship between financial, social, and infrastructural factors and the level of digital financial divide (DFD) of customers in Europe. Applying a difference-in-difference model, the study has revealed that innovation in financial services correlates with a reduced DFD, further reinforced by improved digital infrastructure and social progress. However, paradoxically, the post-Covid environment has widened the gap in financially illiterate regions of the EU. Our results hold relevance for policymakers, governments, and supervisory banking authorities, indicating the most effective areas for intervention in lowering the country's DFD, but they could also support banks in the design of tailor-made digitalization strategies.