Credit Card Access and Income Inequality: The Mediating Roles of Financial Inclusion and Digital Payment Adoption in Developing Nations

Abstract

The study investigates how credit card access affects income inequality in 30 developing countries from 2000 to 2024 through the mediating roles of financial inclusion and digital payment adoption. A panel fixed-effects mediation model was used to estimate direct and indirect effects, with clustered robust errors. To address endogeneity and dynamic persistence, the Arellano-Bond dynamic panel Generalised Method of Moments served as a robustness check. Indirect effects were validated using bootstrapped standard errors with 5,000 replications. The findings indicate that the expansion of credit card access considerably improves both financial inclusion and the adoption of digital payments, thereby promoting a more comprehensive engagement with formal financial systems. By empowering lower-income households, increasing access to financial services, and reducing transaction costs, these mediating pathways are essential in the reduction of income inequality. Nevertheless, the direct impact of credit card access on inequality is still positive, indicating that credit cards may disproportionately benefit affluent groups when used in isolation. Based on these, policymakers should prioritise expanding credit card access alongside measures that enhance financial inclusion and digital payment adoption to ensure equitable benefits across income groups. Regulatory frameworks should encourage banks and fintech providers to offer affordable credit products, promote financial literacy programs, and facilitate mobile and digital payment platforms targeting underserved populations. For future research, studies could extend the analysis to micro-level or household data to capture individual behavioural patterns and heterogeneity in credit card usage.