FinTech as a Financial Liberator

Interest rate caps on household savings are a common form of financial repression in developing countries and typically benefit banks at the expense of households. Using proprietary data from a leading Chinese FinTech company, we investigate FinTech’s role in alleviating financial repression through shadow bank deposit competition. Exploiting geographical heterogeneity in the adoption of a major FinTech money market fund with deposit-like features but no binding interest rate cap, we find greater deposit outflows and lower deposit growth among banks with more FinTech-exposed depositors. Exposed banks respond to FinTech competition by offering similar market-rate deposit substitutes. FinTech thus facilitates bottom-up interest rate liberalization.