High-Speed Internet, Financial Technology and Banking

Working Paper
Published on 1 May 2022

This working paper has been accepted for publication at Management Science. 

Abstract

Exploiting the staggered arrival of fibre-optic submarine cables, we show that high-speed internet promotes the role of banks and credit in Africa. Variation within-country and across multi-country bank networks indicates that high-speed internet induced a 22% expansion in credit supply. We investigate the role of plummeting telecommunication costs in promoting the bank adoption of new financial technologies and study a specific technology used in the interbank market, the real-time gross settlement system (RTGS). We find that upon connecting to high-speed internet, banks adopt the RTGS more extensively, reduce inside liquidity and increase interbank transactions and lending. We also observe that high-speed internet particularly strengthens firms in countries with weak pre-existing interbank markets.

Authors

Nicola Limodio

Bocconi University

Angelo D'Andrea

Bank of Italy