FinTech adoption and household risk-taking

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Title: FinTech adoption and household risk-taking
Author: Hong, Claire Yurong ; Lu, Xiaomeng ; Pan, Jun
Organization: Bank of Finland
Department / Unit: Bank of Finland Institute for Emerging Economies (BOFIT)
Series: BOFIT Discussion Papers
Series number: 14/2021
Year of publication: 2021
Publication date: 25.10.2021
Pages: 72
Subject (yso): kotitaloudet (organisaatiot); riskinotto; kulutus; maksut; sijoitukset; teknologia; käyttöönotto
Keywords: Bofit-kokoelma; FinTech
JEL: G11; G50
Other keywords: FinTech; Digital Payment; Financial Inclusion; Consumption; Risk Taking
Abstract: Using a unique FinTech data containing monthly individual-level consumption, investments, and payments, we examine how FinTech can lower investment barriers and improve risk-taking. Seizing on the rapid expansion of offline usages of Alipay in China, we measure individuals’ FinTech adoption by the speed and intensity with which they adopt the new technology. Our hypothesis is that individuals with high FinTech adoption, through repeated usages of the Alipay app, would build familiarity and trust, reducing the psychological barriers against investing in risky assets. Measuring risk-taking by individuals’ mutual-fund investments on the FinTech platform, we find that higher FinTech adoption results in higher participation and more risk-taking. Using the distance to Hangzhou as an instrument variable to capture the exogenous variation in FinTech adoption yields results of similar economic and statistical significance. Focusing on the welfare-improving aspect of FinTech inclusion, we find that individuals with high risk tolerance, hence more risk-taking capacity, and those living in under-banked cities stand to benefit more from the advent of FinTech.

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