Does Access to Digital Financial Services Increase Consumption in Indonesia?

Abstract

The development of technology is increasing rapidly, the development of the internet in Indonesia has been sufficient to start financial development. Financial development using ICT can reduce problems in accessing financial services such as distance, collateral, time and high credit or interest costs. Previous studies have provided limited explanations for financial development in Indonesia. Using panel data from 2019 to 2022 collected from the Central Bureau of Statistics and the Financial Services Authority covering 34 provinces, we examined the effect of access to digital financial services on consumption levels in Indonesia. From the results of the random effect model (REM) regression analysis, we found that access to digital financial services in Indonesia has not increased consumption. The number of account holdings, the number of loans disbursed, and the number of bank branch offices spread across all provinces in Indonesia are not enough to increase consumption. Only 21.75% of financial service access variables and control variables such as human capital levels, economic growth, urbanization and the Covid-19 year could explain consumption levels.