FinTech Adoption and Household Risk-Taking

Abstract

This paper examines how FinTech can lower investment barriers and help households move toward optimal risk-taking, using a unique account-level data on consumption, investments, and FinTech usage from Ant Group. During our sample period, China experienced a rapid increase in FinTech penetration in the form of offline digital payment, and our measure of FinTech adoption is constructed relative to this fast-developing trend of new technology. Taking advantage of our consumption data, we further infer individuals’ risk tolerance from their consumption volatility. We find that, while Fin-Tech adoption improves risk-taking for all, the more risk-tolerant individuals benefit more from FinTech advancement. The magnitude of FinTech improvement is further quantified relative to the optimal alignment of risk-taking and consumption prescribed by Merton (1971). Aggregating to the city-level, we find significant variations in Fin-Tech adoption across cities in China, owing to the gradual spread of the new technology from Hangzhou to inner China. Examining the enhancement in risk-taking across geographical locations, we find that cities with low financial-service coverage benefit the most from FinTech penetration. Overall, our results show that, by unshackling the traditional constraints, FinTech improves risk-taking for individuals who need it the most. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.