The Fintech Industry
Paper Session
Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)
- Chair: Caleb Stroup, Davidson College
Mutual Risk Sharing and Fintech: The Case of Xiang Hu Bao
Abstract
Xiang Hu Bao (XHB), meaning 'mutual treasury' in Chinese, is a novel online mutual aid platform operated by Alibaba's Ant Financial to facilitate risk sharing of critical illness exposures. XHB reached nearly 100 million members in less than one year since its launch and offered its members critical illness protections at significantly lower cost than traditional critical illness insurance. There are three major distinctions between XHB and traditional insurance products. First, XHB leverages the tech giant's platform and digital technology to lower enrollment and claim processing costs. Second, different from insurance applying sophisticated actuarial pricing models, XHB collects no premiums ex ante from members, but instead equally allocates indemnities and administrative costs among participants after each claims period. Third, XHB limits coverage amount, often below critical illness insurance products, particularly for older participants. We show this restriction potentially leads to separating equilibrium, a la Rothschild-Stiglitz, where low-risk individuals enroll in XHB while high-risk individuals purchase critical illness insurance. Data shows that the incidence rate of the covered illness among XHB members is well below that of comparable critical illness insurance. Our findings further suggest the role of advantageous selection in explaining the cost advantages of the Fintech-based mutual aid programs.Bank Competition amid Digital Disruption: Implications for Financial Inclusion
Abstract
This papers studies how banks compete amid digital disruption and resulting distributional effects on financial inclusion. Using survey data, we document that digital consumers (younger, more-educated and higher-income) have adapted to mobile banking, whereas non-digital consumers still heavily rely on brick-and-mortar branches. We build a model of bank competition with endogenous branching and entry decisions to show that the shift of digital consumers’ preference from branch to digital services affects how banks compete which results in negative spillovers to non-digital consumers. Weempirically test the model predictions by exploiting the staggered expansion of 3G networks across the U.S., and our identification strategies rely on difference-in-differences and instrumental-variable(the frequency of lightning strikes) analyses. We find that (1) banks close costly branches, especially in regions with more young people; (2) banks enter new markets with fewer branches which intensifies local competition; and (3) branching banks increase their prices, whereas non-branching banks lower
prices. Consequently, non-digital consumers pay a higher cost to access financial services and thus face the risk of financial exclusion. Approximately, this channel causes 2.5 million previously banked
individuals to lose banking access. Overall, the evidence highlights the role of banks’ endogenous responses to digital disruption in widening digital inequality.
The Fintech Gender Gap
Abstract
Can fintech close the gender gap in access to financial services? Using novel survey data for 28 countries, this paper finds a large and ubiquitous `fintech gender gap': while 29% of men use fintech products, only 21% of women do. This difference exceeds the gender gap in bank account ownership at traditional financial institutions. Country characteristics and individual-level controls explain about a third of the fintech gender gap. Gender differences in attitudes towards fintech explain over 60\% of the residual gap: it declines from 5.9 percentage points to 2.2 percentage points when accounting for gender differences in the willingness to use new financial technology, the suitability of fintech products, and the willingness to use fintech entrants if they offer cheaper products. The paper concludes by discussing drivers of differences in attitudes, and implications for policy to foster financial inclusion with new technology.Are Borrowers Paid to Repay? Payday Effect in FinTech Lending
Abstract
We conduct a field experiment to investigate how payday loan contracts design affects loan outcomes. Using a FinTech lending platform in Indonesia, we randomly extend the loan term by one or two days to align the loan due date with borrowers’ salary payday after the loan has been approved.Difference-in-difference estimators suggest that the extension postponing the due date after borrowers’ salary payday increases the repayment likelihood by 27%, although such loan extension does not affect loan repayment when the due date is far away from salary payday. The effect is larger for small-sized loans, borrowers with low credit ratings, and borrowers with overdue records. Our results highlight the relationship between loan contract flexibility and loan performance
JEL Classifications
- G5 - Household Finance