Jamileh Ali Mustafa

This study investigates the implications of the interaction of financial literacy, regulatory technology, and decentralized finance applications for financial sector development. A two-step analytical regression approach on EViews 10 was used, which performs a one-factor analysis for each variable to identify the individual impact of each factor. A linear FMOLS approach was used to evaluate the cooperative effect of integration. The methodology was implemented on a dataset comprising 2,880 observations from 23 financial institutions in Jordan.
The findings support the hypothesized dynamic interrelations between the essential Fintech factors relevant to the sustainable development of the financial sector, including significant and insignificant factors with the impact of inflation, which provides an adequate understanding of Fintech’s evolution. Additionally, the outcomes consider post-2017 regulatory changes that reflect the role of supervision and regulation for the financial sector’s flexibility and efficiency. Therefore, the results reveal the essential contribution of integrating decentralized finance applications, financial literacy, and regulatory technology to the development of Jordan’s financial sector. Financial literacy serves as a facilitator, regulatory technology is a compliance enabler, and decentralized finance applications are driving forces of innovation and financial inclusion, ensuring a robust and sustainable financial ecosystem. It is shown that the interaction of factors forces the sector’s development, reflecting the world’s trend in digital inclusion and viable financial development.

This study investigated the influence of digital payment systems on banks’ stability by exploring their effect on the Z-score of the Jordanian banking sector during the period from 2004 until 2022. It specifically focused on liquidity risks generated from e-payment transactions and how sufficient capital adequacy ratios enhance banking sector stability over both short-term and long-term periods by standing against sudden volatilities yielded from large amounts of transactions executed through digital payment systems. To achieve this objective, the study utilizes time series dual regression analyses of vector autoregression and vector error correction models on E-views 12 to cover the time variation influences of digital payment on the banking sector Z-score. The regression results indicate varied effects between the benefits and risks of digital payment systems on a bank’s Z-score that influence the immediate sector’s stability, indicating that while digital payment systems can initially hold liquidity risks, leading to short-term instability; the strategic implementation of robust capital adequacy ratio stands as a protective buffer by fostering long-term banking sector resilience. The results also suggest future predictions and insights for financial sector legislators and regulators emphasizing the need for monitoring strategies that stimulate continuous innovations in the digital payment infrastructure while constantly ensuring the stability and resilience of the banking sector. Thus, prudent liquidity management and the reinforcement of capital buffers are encouraged to pilot the dual challenges and opportunities that appeared at the stages of the digital payment process, ultimately guiding the sector toward continuous growth and sustainability.

Acknowledgment
The author is grateful to the Middle East University, Amman, Jordan for the financial support granted to cover the publication fee of this research.