Artificial Intelligence Fintech and the Interaction between Digital and Traditional Finance in Expanding Financial Inclusion among Underserved United States Communities
DOI:
https://doi.org/10.54536/ajfti.v4i1.7990Keywords:
Artificial Intelligence, Digital Finance, Financial Inclusion, Fintech, Traditional Banking, Underserved Communities, United StatesAbstract
Financial exclusion continues to affect over 22 million unbanked and 47 million underbanked adults in underserving communities in the United States. The steep growth of artificial intelligence (AI)-enhanced financial technology (FinTech) platforms is an unprecedented opportunity to fill this gap by complementing, and not substituting, the traditional financial infrastructure. The paper will focus on the relationship between digital AI-FinTech solutions and conventional financial institutions in growing financial inclusion of underserved US communities, such as low-to-moderate income (LMI) households, rural communities, racial and ethnic minorities, and other historically marginalized communities. Based on the panel data of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board, Consumer Financial Protection Bureau (CFPB) and Federal Communications Commission (FCC) surveys on 50,400 census tracts across three rounds of surveys (2015, 2019, 2023), this paper creates a composite Financial Inclusion Index based on a three-stage principal component analysis (PCA Findings affirm that AI-FinTech penetration has a strong and positive impact on financial inclusion; more so, there is a threshold effect, which is achieved at an index value of 0.387, beyond which the marginal returns to further AI-FinTech adoption become less significant and has policy implications on investment priority. The paper also shows that digital and traditional finance are complements: community banks and credit unions that implement AI-enabled services have a multiplicative inclusion effect relative to models based on digital-only and branches only. The policy proposals focus on the expansion of regulatory sandboxes, investment in broadband infrastructure, modernization of the Community Reinvestment Act (CRA), and algorithm fairness requirements.
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