FinTech as a Financial Liberator

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Abstract

An artificially low interest rate on household savings is a common form of financial repression in developing economies and typically benefits incumbent banks. Using proprietary data from a leading Chinese FinTech company, we study the role of Fintech in ending the financial repression by introducing to households money market funds (MMFs) with deposit-like features. Cities and banks whose depositor base are more exposed to FinTech see greater deposit outflows. Importantly, banks respond to FinTech competition by offering their own products with market interest rates. FinTech thus facilitates a bottom-up interest rate liberalization.