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FinTech for Macroeconomists

Paper Session

Saturday, Jan. 4, 2020 8:00 AM - 10:00 AM (PDT)

Marriott Marquis, Coronado Room
Hosted By: American Economic Association
  • Chair: Francesco D'Acunto, Boston College

Borrowing in Response to Windfalls

Michaela Pagel
,
Columbia University
Arna Olafsson
,
Copenhagen Business School

Abstract

We use high-accuracy and comprehensive transaction-level panel data containing information on all spending, income, balances, and credit limits of a representative sample of the Icelandic population. We document that the marginal propensity to consume (MPC) out of small windfalls due to lottery payments, i.e., perfectly temporary unexpected income shocks, is larger than one for the average individual. Furthermore, we document that individuals who receive small windfalls increase their short-term unsecured consumer debt, such as overdrafts, in response. This borrowing response is prevalent for individuals having relatively little as well as a lot of liquidity, i.e., borrowing capacity. The larger-than-one MPCs are thus financed using expensive consumer debt that is then rolled over for a considerable period of time. For large windfalls we only observe small MPCs and no borrowing responses. We also document that individuals do not increase their savings in response to either small or large windfalls. Our findings point to overconsumption problems driving both high MPCs as well as large consumer debt holdings and are clean evidence against liquidity constraints as an explanation for high MPCs out of windfalls.

The Value of Mobile Payment Technology

Sumit Agarwal
,
National University of Singapore
Wenlan Qian
,
National University of Singapore
Yuan Ren
,
National University of Singapore
Bernard Yeung
,
National University of Singapore

Abstract

Using a representative sample of 250,000 consumers from a leading bank in Singapore, this paper studies the impact of cashless payment technology on household spending behavior. We utilize the introduction of the Quick Response (QR) code payment function in the mobile wallet, a cashless payment technology that exogenously facilitated the usage of the mobile wallet of our bank. Our difference-in-differences analysis shows that consumers with mobile wallet accounts before the QR code introduction significantly increased their mobile wallet usage and decreased their cash withdrawal amount (frequency) by 5% (2%) after the event. The reduction in cash withdrawal is stronger during the first week following the payday, when consumers intensively conduct cash withdrawal. We also find an increase in total spending among the treatment group by 1.7%, mainly driven by spending through credit cards. We do not find significant increase in credit card debt among the treatment group after the event.

Perceived Precautionary Savings Motives: Evidence from FinTech

Francesco D'Acunto
,
Boston College
Thomas Rauter
,
University of Chicago
Christoph Scheuch
,
Vienna University of Economics and Business
Michael Weber
,
University of Chicago

Abstract

We study the consumption response to the provision of credit lines to individuals that previously did not have access to credit combined with the possibility to elicit directly a large set of preferences, beliefs, and motives. As expected, users react to the availability of credit by increasing their spending permanently and reallocating consumption from non-discretionary to discretionary goods and services. Surprisingly, though, liquid users react more than others and this pattern is a robust feature of the data. Moreover, liquid users lower their savings rate, but do not tap into negative deposits. The credit line seems to act as a form of insurance against future negative shocks and its mere presence makes users spend their existing liquidity without accumulating any debt. By eliciting preferences, beliefs, and motives directly, we show these results are not fully consistent with models of financial constraints, buffer stock models with and without durables, present-bias preferences, uncertainty about future income, bequest motives, or the canonical life-cycle permanent income model. We label this channel the perceived precautionary savings channel, because liquid households behave as if they faced strong precautionary savings motives even though no observables suggest they should based on standard theoretical models.
Discussant(s)
Alberto G. Rossi
,
Georgetown University
Filippo Mezzanotti
,
Northwestern University
Marco DiMaggio
,
Harvard University
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • D1 - Household Behavior and Family Economics