FinTech Megatrends: What Welfare Implications Can We Draw for Financial Consumers?

Abstract

This study aims to assess the welfare implications of the FinTech service providers on financial consumers, by focusing on one particular subsector - the online capital-raising activities (CRA) including P2P lending and crowdfunding.To that end, the key arguments advanced by the recent studies are synthesized as follows: Thanks to the rapid deployment of online platforms and digital data in recent years, the CRA service providers have greatly enhanced intermediation efficiency, which results in lower transaction cost and heightened convenience for financial consumers, and have also extended financial inclusion for marginal borrowers in both developed and developing countries;These alternative service providers tend to narrow the credit gap caused by information asymmetry between borrowers and lenders by utilizing soft data for ex ante credit evaluation; However, some concerns are raised as to the likelihood of over-leverage by certain segments of P2P platform borrowers as well as the heightened risk of cyber-crimes such as identity theft and voice phishing. Based on these findings, policy implications as to designing effective measures of financial consumer protection, both from demand-side and supply-side of the CRA service sectors, are discussed.