Banking fintech innovation and income inequality: urban-rural and inter-regional evidence from China

Inclusive growth amid rapid fintech advancement remains a critical challenge for emerging economies. However, the banking sector’s role in shaping the distributional effects of fintech remains underexplored. This study employed semantic machine learning to measure banking fintech innovation quality among Chinese commercial banks (2010–2022) and examined its distributional effects on inter-regional and urban-rural income inequality. Banking fintech innovation narrows inter-regional inequality while widening urban-rural inequality, with effects varying across bank types and regional development stages; urban-rural inequality narrows only in economically developed regions. Mechanistically, it narrows inter-regional inequality by reducing gaps in both high-quality entrepreneurship and labor productivity but widens urban-rural gaps in both dimensions. Enhancements in digital infrastructure and residents’ ability to utilize digital resources can mitigate urban-rural widening. The inclusive effects of banking fintech innovation emerge when regulation-innovation matching crosses specific thresholds, with capacity-building regulations outperforming punitive measures. These findings identify the boundary conditions for the inclusive potential of banking fintech in emerging economies and offer policy implications for the equitable development of financial technology.