Does Digital Financial Inclusion Increase the Likelihood of Fraud? Evidence from Province-Level Data in China

The increasing number of online fraud cases has aroused widespread public concerns. In this paper we postulate that digital financial inclusion constitutes an important reason for this phenomenon. Using annual data of the digital financial inclusion index as well as sub-indices and fraud cases from 30 provinces in China from 2014 to 2020, we find robust evidence for the significant impact of digital financial inclusion as well as its two dimensions, digital credit and digital insurance, on fraud. More specifically, digital credit induces fraud by promoting residents’ consumption, whereas digital insurance restrains fraud by raising the level of public security