“Integrating financial literacy, regulatory technology, and decentralized finance: A new paradigm in Fintech evolution”

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.


INTRODUCTION
In the modern business environment, Fintech ecosystems are essential in determining the development paths of modern economies.An economy driven by a Fintech system develops and transforms at a frantic pace with a convergence of factors such as technological improvement, infrastructural capabilities, and market regulatory frameworks.Additionally, there is a critical attempt in the financial landscape, alongside the regulatory technology solutions that increase sector resilience through compliance, transaction monitoring, and real-time risk bridged by financial literacy.Thus, the integration of financial literacy, regulatory technology, and decentralized finance applications for financial development presents an essential scientific problem in the Fintech ecosystem.The scientific problem in question is complex due to the critical elements of technological advancement, regulatory compliance, and the expansion of regulatory services.This integration process is fast and will impact the public's understanding of the technologies forcing the public to understand them for effective use.Financial literacy, therefore, will bridge the technology and the people to ensure effective use of the complex solutions that the people do not comprehend.Equal consideration will be given to concurrent compliance solutions, including the RegTech solutions that offer real-time compliance, risk management, and transaction monitoring, thus ensuring the depth of the financial sector.The critical elements above are vivid in Jordan, where the Central Bank of Jordan is committed to developing the critical sector of the economy.By working with tech companies and financial institutions, Fintech in Jordan experiences growth and development with decentralized finance and regulatory technology integration to benefit the industry.

LITERATURE REVIEW AND HYPOTHESES
The fast emergence of Fintech has driven transformative change in the financial industry, modifying the ways to access, receive, and regulate financial services (Alt & Puschmann, 2012;Asgari & Izawa, 2023).The review concerns the most influential factors that have contributed to this new environment development, which are Decentralized Finance applications (DeFi), Financial Literacy (FL), and Regulatory Technology (RegTech).It is important for the emergence of flexibility, inclusiveness, and resilience in the financial industry (Chiu, 2016).This paper analyzes the previous academic works on the above-mentioned three issues to place this study in the broader history of Fintech's impact on the development of the financial industry ( These scholars highlight the need for a flexible regulatory approach that keeps pace with the swift advancements in financial technology.By integrating these perspectives, the perception of Regtech's integral role in the contemporary financial ecosystem is enriched, particularly regarding DeFi's growth and the key aim to achieve a stable and trustworthy financial sector.
In conclusion, while existing literature has individually explored FL, RegTech, and DeFi, the interaction impact of these elements on FSD remains underexplored.Yet, a holistic analysis of how FL, RegTech, and DeFi collectively influence the financial sector, particularly in a developing country context like Jordan, is lacking.This study seeks to fill this gap by investigating the integrated roles of FL, Regtech, and DeFi in the evolution of Jordan's financial ecosystem, positing a dynamic, interdependent relationship among these elements that collectively drive and enhance FSD.This led to research hypotheses as follows: H1: DeFi applications enhance FL, as well as the effectiveness of supervision and regulatory frameworks.
H2: RegTech facilitates the advancement of FL level, thereby promoting the adoption of DeFi applications.
H3: FL is crucial for augmented engagement with DeFi applications governed by RegTech.
H4: The progression of the FinTech ecosystem's impact on FSD depends on the collaborative integration of RegTech, FL, and DeFi applications.

METHOD
EViews 10 was subjected to a two-step analytical approach within this study for two reasons.Firstly, each factor of FL, RegTech, and DeFi applications was tested separately to check the effect of the mentioned factors on FSD individually, and then their integration influence to check if it enhances FSD more than when each of them affects separately.Therefore, the dependent variable (DV), the FSD index, is calculated as total assets in financial institutions in % of GDP to estimate financial development in Jordan.This index links the three primary indicators currently used Firstly, the one-factor regression analysis for each variable is conducted by using the secondary data of 2,880 observations from 23 financial institutions in Jordan during the period 2011 to 2022, after accompanying the essential primary tests on research data, containing the stationarity, panel co-integration, and the cross-sectional dependence tests; the co-integration regression is built by using fully modified OLS used by Phillips and Hansen (1990) to run ideal estimations of co-integrating regressions model for this study and examine the role of the integration between the three factors in improving the financial ecosystem development.The significance of the judge variables in the model was decided by relating their probability values to α = 0.05.A judge variable was deemed significant if its probability value was less than α.

RESULTS
This study started with an overview of the elaboration levels within Jordan's financial system compared to those of countries across various income levels in Table 2, based on average data from 2010 to 2021.This comparative analysis seeks to shed light on Jordanian's financial sector development relative to global financial trends and developments.
Jordan is classified as an upper middle-income class according to the World Bank.The contribution of the financial sector assets reaches 8.0% % of GDP, which indicates a significant presence of deposits within the financial sector.However, the insurance industry assets contribute to GDP (3.34%) and stock market capitalization GDP (69.32%) is relatively lower compared to some other high-income countries.The aftertax return on assets of Jordanian banks is 1.02% compared to other UMI countries.Regarding relatively high income, Jordan's financial ratios, such as stock market capitalization to GDP are lower.On the other hand, Jordan outperforms some countries with similar income levels, such as China and Turkey, in certain indicators, including financial sector deposits to GDP.
The financial sector in Jordan is regulated by the Central Bank of Jordan (CBJ); it involves banks, exchange companies, insurance, financing, and lending-based crowdfunding.Figure 2 shows that banks dominate the financial sector in Jordan, formulating around 60.6 billion total assets.Also, Jordan enjoys a sound and solid banking system that can withstand the shocks and high risks due to the high and satisfactory levels of capital that are the highest in the Middle East and North Africa (MENA) region, in addition to the comfortable levels of liquidity and profitability (JFSR,2021).For further analysis, the study plots the trend of financial sector development (FDI) with each variable throughout the study in Figure 3.The trend of FDI shows a general increase over the years, starting with a value above 1.7 in 2011 and experiencing steady growth until 2014, and remained relatively stable with minor fluctuations through 2016 and then rose in 2018.However, in 2021, FDI fell back to a level below that of the starting year due to the COVID-19 pandemic.

Descriptive statistics
The trends of the other variables also show varied patterns over the years.For example, electronic wallets (EW) and e-Fawateer.compayment systems (EFW) have shown a particularly steep rise since they were applied in 2014, and EMT exhibited a gradual increase.
POS showed a continuous increase due to the gradual demand for this sector.Mobile subscriptions started to be used in Jordan in 2015 suggesting an expansion in this area, with the trend sharply increasing gradually.Finally, ACH started effectively working in 2016, followed by a sharp escalation, indicating significant developments or milestones being reached in the latter half of the decade.
For Regtech changes across the study period, Table 4 exhibited the most significant changes in laws issued by CBJ to organize the Fintech sector.

Regression analysis results
Under one-factor analysis, EFWit showed a significant positive effect with a coefficient = 0.017, p = 0.03, while POSit reported a further positive influence with a coefficient = 1.257, p = .001.Both DUMit and ACHit were statistically significant with minor coefficients (0.004 and 0.001, respectively).Surprisingly,  On 15/10/2020, the company was licensed as a payment service provider through the JoMoPay mobile payment system.2020 Instructions for accrediting global payment systems, requiring international entities to comply with these provisions.2021 Modified instructions for 'Regulating Know Your Customer (KYC) Procedures Electronically'.2021 By the end of the year, 15 companies were licensed for electronic payment and money transfer activities.

2022
Instructions for the organization of open financial services operations affecting all banks and licensed payment and money transfer companies in the kingdom.

2022
No new electronic money transfer and payment licenses were issued; 7 companies were licensed as operators of electronic payment systems for financial transactions.The company was licensed to practice electronic funds collection services through merchants' points of sale.It is worth noting that regression results are consistent with the study's hypotheses and emphasize the need for adaptive strategy in the financial sector, integrating technological solutions, regulatory foresight, financial awareness, and macroeconomic stability to foster the development of the financial ecosystem.Supported by FMOLS analysis, which showed some variations in coefficient values compared to the one-factor regression, demonstrating the importance of considering integration among Fintech ecosystem factors.For occasion, in the FMOLS regression, the coefficient for EFWit decreased to 0.009 from 0.017 in the one-factor analysis, while POSit showed a slight reduction to 1.1 from 1.257.These differences indicate a shift in the magnitude of their impacts in a long-term, integrated context.Similarly, coefficients for DUMit and ACHit also exhibited reductions (0.003 and 0.0008, respectively), further reinforcing this trend.

DISCUSSION
In practice, this study is aligned with significant research contributions and provides unique insights about the integration between Fintech factors within Jordan's emerging financial landscape.
The regression analysis conducted aligns with the proposed hypotheses, demonstrating a dynamic interconnection among the Fintech critical factors to achieve sustainable FSD.It also incorporates the effects of both significant and non-significant Fintech factors along with the influence of inflation, which offers a comprehensive view of the dynamics shaping Fintech development.The results revealed a negative impact of inflation rate on FSD, aligning with previous research (Johnson & Ali, 2022; Gupta & Martínez, 2022; O'Connor & Singh, 2024), which reported the negative effects of inflation on the growth of total assets and profitability of financial institutions.
The regulations of Fintech services effectively commenced at the beginning of 2015 by issuing Electronic Transactions Law No. 15 to regulate E-payment services.The CBJ's initiatives facilitate electronic external transfers through platforms such as e-FAWATEER.com,enhancing the efficiency and accessibility of digital financial services for users, and collaborations with banks and e-wallet companies to expand digital services.
Furthermore, the CBJ Sand Boxes functions as a regulatory environment for Fintech innovation allowing entrepreneurs to test their Fintech innovations in a real-world setting, ensuring both innovation and regulatory compliance.This is crucial for fostering a culture of innovation within the financial sector.
According Also, Jordan's digital payments infrastructure plays a critical role in improving the use of DeFi applications.The results indicate high levels of inand interoperability among e-payment agents and varied payment ecosystems such as ATMs, card acquirers, and e-payment platforms.The Key gears of its payment infrastructure include the automated clearing house (ACH) for interbank transfers, the real-time gross settlement system (RTGS), the electronic cheque clearing system (ECC), JoNet for bank-to-ATM transactions, and JoMoPay for mobile payments together with the MEPS and EMPS shifts for retail payments.These systems facilitate digital and mobile payment methods, though their utilization rates are relatively low.Afterwards, Jo-PACC is managed by the national mobile payments switch, JoMoPay, enhancing interoperability among all mobile payment service providers.This connection allows  ) further substantiate the critical role of financial literacy in enhancing financial decision-making and overall financial well-being.The low coefficients imply an apportion of un-banked and under-banked units besides anxiety about the risks coupled with emerging Fintech instruments.As a result, the CBJ and the Ministry of Education have contained FL in schools and advocated entrepreneurship, intending to increase financial awareness, directing basic financial perceptions, including savings, investment choices, and leveraging financial services for sustainable development.
Even though the literacy level in Jordan has been rising significantly in recent years, it still lags, specifically among financially excluded units, which are often more opposed to technological switch.The need for enhanced digital financial literacy is evident.
In terms of DeFi applications, the analysis showed that the e-FAWATEER.comapplication had a significant effect on FSD, despite the insignificant effect of Electronic Wallet Transactions and Electronic Money Transfers in the study.It is supported by Shaikh and Karjaluoto (2015) and Ozili (2018), who showed that the impact of such digital financial services might be nuanced and influenced by consumer trust, adoption rates, and economic conditions.It is worth noting that since 2014, Jordan's financial sector has witnessed significant disruption in its financial products and services with the adoption of DeFi applications.This marked an evolution towards progressed digital financial systems, including the use of ACH and e-FAWATEER.comapplications.The transition also immersed an increased trust in several payment cards within POS, demonstrating an extensive move towards decentralization in financial transactions.Consequently, the CBJ responded by proposing a new law No. (111) of 2017 aimed to regulate all Fintech service providers operating in Jordan and to address the prospective risks associated with Fintech services that could enhance financial literacy by slashing the complexities of DeFi through compliance requirements and progress individuals to adopt Fintech solutions.
Although Jordan preserves the use of cryptocurrencies, the improvement of DeFi in Jordan is also dependent on the country's ICT infrastructure efficiency, the degree of Fintech literacy, and proficiency in Defi technology.DeFi applications were not extensively compromised in Jordan, but the global direction towards it indicates potential for progress, conditional on regulatory advancement and users' acceptance.
It appears that CBJ deems the necessity of synchronization with rapid developments in Fintech to serve the banking and financial sector in a manner that confirms resiliency, safety, and stability.For this purpose, CBJ expresses its continuous support for entrepreneurship in the Fintech sector especially in (2020) after facing a significant downturn in the financial sector due to the COVID-19 pandemic, with a notable increase in the use of DeFi applications.This spillover in DeFi usage can be attributed to its digital and contactless financial solutions spurred by the pandemic's restrictions on physical interactions, simultaneously enhancing financial literacy among users.Furthermore, individuals and businesses turned to DeFi platforms new challenges and opportunities are posed for regulatory bodies in Jordan, for instance, in 2022 CBJ issued instructions to regulate open banking services and mandated all banks and electronic financial services providers licensed to operate in Jordan are required to open Account Information and Payment Initiation services to authorized third-party providers by the end of 2023.
In 2023, Jordan witnessed the initial stages of DeFi applications, with indicators pointing towards potential expansion in the future.DeFi, which utilizes blockchain technology, lacks the need for central intermediaries and is significantly influenced by the regulatory framework established by CBJ.Research analysis of DeFi applications reveals a significant effect of e-FAWA-TER.comtransactions and an insignificant im-pact of electronic wallet accounts and electronic money transfers on DFS.These results indicate the intricacy of the Fintech ecosystem is influenced by factors such as consumer awareness and economic conditions.

CONCLUSION
The objective of this study is to investigate the influence of FL, RegTech, and DeFi applications, thus the importance of their synergistic effect on the progress of the financial ecosystem in Jordan.The results indicate that combining DeFi applications, financial literacy, and RegTech leads to a sustainable recovery in the context of the financial industry's development.Moreover, financial literacy delivers a critical level of knowledge to the customers and enterprises to navigate the Fintech landscape better.This is crucial because DeFi applications work based on blockchain with smart contracts.This technology concept offers banking services on a verified, sequenced, and authoritative level.RegTech in its turn, plays the role of a regulator in the system as it ensures that the advanced aspects of DeFi work within enforced compliance and awareness of the regulation's needs.Thus, it reduces risks and increases trust and stability in the field.
To effectively guide the assimilation of DeFi applications, Regtech, and financial literacy in Jordan, a comprehensive approach is recommended.First, reinforce the regulatory frameworks for DeFi to provide obvious rules that foster innovation and continuation counter to risks.Second, a need for a mixture of comprehensive financial education programs along with binding partnerships with educational entities, Fintech service providers, and regulatory bodies.Third, implementing cybersecurity requirements treating the three factors as one hand might help in bridging gaps between Fintech stakeholders, regulatory groups, and traditional financial companies.
This study strongly recommends using smart contracts within financial institutions in Jordan to revolutionize service offerings, specifically in insurance companies.Additionally, it encourages the adoption and regulatory support of cryptocurrencies issued by central banks, which could pave the way for more inclusive, and secure financial transactions.The formation of a regulatory sandbox is also necessary, permitting the trial testing of innovative DeFi products and services in a controlled environment.
Finally, the integration of these three elements fosters a more inclusive and efficient financial ecosystem by leveraging pioneering Fintech solutions and protecting ecosystem participation.It also improves financial inclusion and the democratization of financial services, contributing significantly to the overall sustainable development of the financial sector.

Figure 1 .Investment
Figure 1.Visual representation of study hypotheses

Figure 3 .
Figure 3. Research variables trend end users, through mobile devices, to access the country's payment ecosystem, thereby promoting financial inclusion for a broad user base, including underserved populations and refugees.Regarding the financial literacy demonstrated through POS, as well as the adoption of internet and mobile banking (Mob), this showed positive impacts on financial development with relatively low coefficients indicating challenges in broader financial inclusion in Jordan.The findings are supported by the scholarly contributions of Mitchell (2014),Kumar et  al. (2019), and Zhou and Abrams (2023), who collectively affirm the beneficial effects of financial literacy.Complementary investigations (Xiao et al., 2014; Allgood & Walstad, 2016 by the World Bank Global Financial Development Database and utilized by diverse researchers based on these data (Asteriou & Spanos, 2019; Li et al., 2019; Liu, 2003; Lavrinenko et al., 2023).Based on a union data set, each of their roles is analyzed separately.Researchers differ from others in the demographic entity that utilizes the same variables (Anagnostopoulos, 2018; Abdullah Ismail Al-Qaruty et al., 2023; Samia et al., 2023; Cai et al., 2022).Additionally, the annual inflation rate shown by an annual CPI was controlled in the study because it is an FSD threshold (Becha, 2023).The study metrics are provided in Table 1.

Table 3
shows the average FDI is slightly below the median at 1.93% and 1.94%, respectively, indicating a distribution that is roughly symmetrical to give a detailed insight into Fintech factors including EWD, EFW, EMT, POS, MOB, and ACH.

Table 5 .
One-factor regression analysis results