Financial Inclusion

  • 详情 China’s Pursuit of Central Bank Digital Currency: Reasons, Prospects and Implications
    Amongst major economies, China has been taking a lead in the development of central bank digital currency (CBDC), which has generated widespread interest and impact around the globe. China’s CBDC, commonly known as e-CNY, is designed with several distinctive features, enabling it to compare favorably to other payment methods such as credit cards, mobile payment, unbacked cryptocurrency, and stablecoins. A variety of social, economic, political, and regulatory reasons can be identified to help explain China’s active pursuit of CBDC. However, the prospect of success will be affected by many factors and may vary between the domestic and international markets. This paper argues that the adoption of eCNY will likely succeed domestically, but may face more challenges in the international markets. The development of e-CNY seems to have created a catfish effect on other major economies in the race for CBDC. It is not fully clear, however, that the CBDC race will be better explained by the first-mover or the late-mover advantage theory. The CBDC project will have both public and private law implications, and several legal issues warrant particular attention in relation to the legal status of CBCD, the role and responsibility of the central bank, legal remedies for losses suffered by CBDC users from cybersecurity issues and operational problems, and the issue of data privacy and protection.
  • 详情 Attention Constraints and Financial Inclusion
    We show that attention constraints of decision makers create barriers to financial inclusion. Using administrative data on retail loan screening processes, we find that attention-constrained loan officers exert less effort reviewing applicants from lower social or economic status (SES) backgrounds and reject them more frequently. More importantly, when externally imposed increases in workload tighten attention constraints, loan officers are even more prone to quickly rejecting low SES applicants but quickly accepting very high SES applicants without careful review, further widening the approval rate gap between high and low SES applicants — a unique prediction of the attention-based mechanism. Our findings suggest that decision makers’ attention constraints could amplify taste-based and statistical discrimination, which further exacerbates financial inclusion gaps, and that financial technologies that reduce information-processing costs may promote more balanced financial access.
  • 详情 Beyond Performance: The Financial Education Role of Robo-Advising
    Using unique data on Alipay users' investment accounts, we find that, in addition to generating better performance than investors’ self-directed portfolios, robo-advising has a positive spillover effect on its adopters in terms that it improves their investment behaviors. Investors have more diversified portfolios and exhibit fewer behavioral biases in portfolio management and fund choices in their self-directed accounts after adopting robo-advising. The spillover effect is more prominent for adopters who interact with the service more actively and who were less sophisticated before adopting the app. We also find that adopters learn from the robo-advisor by simply imitating its portfolios or strategies. Collectively, this study provides large-sample, non-laboratory evidence that robo-advising effectively plays a role in educating investors through repeated interactions with its adopters and setting investment models that are easy to follow.
  • 详情 Attention Constraints and Financial Inclusion
    We show that attention constraints on decision-makers create barriers to financial inclusion. Using administrative data on retail loan-screening processes, we find that attention-constrained loan officers exert less effort reviewing applicants from lower socioeconomic status (SES) backgrounds and reject them more frequently. More importantly, when externally imposed increases in loan officers’ workloads tighten attention constraints, loan officers are even more prone to quickly rejecting low-SES applicants but quickly accepting very high-SES applicants without careful review. Such selective attention allocation further widens the approval rate gap between high- and low-SES applicants — a unique prediction of the attention-based mechanism.
  • 详情 The Rise of E-Wallets and Buy-Now-Pay-Later: Payment Competition, Credit Expansion, and Consumer Behavior
    The past decade has witnessed a phenomenal rise of digital wallets, and the COVID-19 pandemic further accelerated their adoption globally. Such e-wallets provide not only a conduit to external bank accounts but also internal payment options, including the ever-popular Buy-Now-Pay-Later (BNPL). We examine, for the first time, e-wallet transactions matched with merchant and consumer information from a world-leading provider based in China, with around one billion users globally and a business model that other e-wallet providers quickly converge to. We document that internal payment options, especially BNPL, dominate both online and on-site transactions. BNPL has greatly expanded credit access at the extensive margin through its adoption in two-sided payment markets. While BNPL crowds out other e-wallet payment options, it expands FinTech credit to underserved consumers. Exploiting a randomized experiment, we also find that e-wallet credit through BNPL substantially boosts consumer spending. Nevertheless, users, especially those relying on e-wallets as their sole credit source, carefully moderate borrowing when incurring interest charges. The insights likely prove informative for economies transitioning from cash-heavy to cashless societies where digital payments and FinTech credit see the largest growth and market potential.
  • 详情 Attention Constraints and Financial Inclusion
    We show that attention constraints of decision makers function as barriers to financial inclusion. Using administrative data on retail loan screening processes, we find that loan officers exert less effort reviewing applicants from unattractive social or economic backgrounds and reject them more frequently than justified by credit quality. More importantly, when quasi-random workload variations tighten officer attention constraints, unattractive applicants receive even worse treatment—review-time halves and approval rates drop by approximately 40%—while attractive applicants are not affected. Our findings suggest that financial technologies that reduce information-processing costs may promote more balanced financial access.
  • 详情 数字足迹作为收债的抵押品
    We examine the role of borrowers' digital footprints in debt collection. Using a large sample of personal loans from a fintech lender in China, we find that the information acquired by the lender through borrowers' digital footprints can increase the repayment likelihood on delinquent loans by 18.5%. The effect can be explained by two channels: bonding borrowers' obligations with their social networks and locating borrowers' physical locations. Moreover, the lender is more likely to approve loan applications from borrowers with digital footprints, even though these borrowers may occasionally have a higher likelihood of delinquency. The use of digital footprints can remain legitimate under stringent privacy protection regulations and fair debt collection practices. Our findings suggest that digital footprints, as a new type of collateral, can ultimately enhance financial inclusion by facilitating the lender's collection of delinquent loans.
  • 详情 Broadband Infrastructure and Digital Financial Inclusion in Rural China
    This paper examines the relationship between the large-scale construction of broadband infrastructure and digital financial inclusion in rural China. To make causal inferences, we exploit a quasi-natural experiment and use a difference-in-differences identification strategy with panel dataset of Chinese counties from 2014 to 2018. The results show that broadband infrastructure significantly contributes to digital inclusion. Further, we distinguish between two dimensions of digital inclusion, namely, the coverage and the usage. We find that while broadband infrastructure significantly promotes the coverage dimension, its effect on the usage dimension is limited. Besides, the effects of broadband infrastructure on digital inclusion, and in particular on the usage dimension, are larger in areas with higher levels of human capital, higher levels of social capital, and higher penetrations of bank branches. Taking into account those moderators is important to fully harness the potential of broadband infrastructure on financial inclusion.
  • 详情 Cashless Payment and Financial Inclusion
    This paper evaluates the impact of mobile cashless payment on credit provision to the underprivileged. Using a representative sample of Alipay users that contained detailed information about their activities in consumption, credit, investment, and digital footprints, I exploit a natural experiment to identify the real effects of cashless payment adoption. In this natural experiment, the staggered placement of Alipay-bundled shared bikes across different Chinese cities brings exogenous variations to the payment flow, allowing me to address the endogeneity issues and establish a causal relationship. I find that the use of in-person payment in a month increases the likelihood of getting access to credit in the same month by 56.3%. Conditional on having credit access, a 1% increase in the in-person payment flow leads to a 0.41% increase in the credit line. Those having higher in-person payment flow also use their credit lines more. Importantly, the positive effect of in-person payment flow on credit provision mainly exists for the less educated and the older, suggesting that cashless payment particularly benefits those who are traditionally underserved.
  • 详情 Digital financial inclusion and air pollution: Nationwide evidence of China
    We provide nationwide causal estimates of digital financial inclusion’s (DFI) effect on air pollution in the short term for China from 2014 to 2018. Using distance to Xihu District as an instrument, 1% gain of DFI increases air pollution by 0.36%. The baseline result is strongly robust to various checks. The coverage breadth and usage depth of DFI increase pollution, with the elasticity of 0.39 and 0.37 respectively, whereas the digitization level of DFI lowers pollution, with the elasticity of -1.42. The heterogeneous short-run effect of DFI can be attributed to a multitude of channels, including pollution standard, geographical factors, population density, development gaps and international trade.