International Journal of Science, Engineering and TechnologyAuthors: Vittal Jadhav
Abstract: Over the past decade, there has been an explosion of academic and policy attention to the intersection of financial technology (FinTech) and household financial behavior. The way households conduct their financial lives is changing rather rapidly, as more and more households are switching from traditional banking to digital platforms and thereby becoming more exposed and risk-averse to their financial risk. This paper studies the effect of FinTech on household risk-taking behavior by digital payments and platform-based investments, specifically, Peer-to-peer (P2P) lending, robo advisors, and equity crowdfunding. We use experience from both developed and emerging economies to analyze the use of digital financial tools to empower households to make better informed financial decisions while introducing new financial risks.FinTech services are then classified into three main categories: (i) digital payment systems, (ii) investment platforms, and (iii) advisory technologies. Using econometric models and empirical evidence, we find that households adopting these technologies are more risk-taking compared to non-adopters. Financial literacy is enhanced through digital interfaces, while access to real-time information and reduced transaction costs are factors that facilitate this behavioral shift. In addition, the proliferation of mobile banking and digital wallets has democratized access to financial services, providing the unbanked population in emerging economies. As a consequence, there has been a rise in the level of financial participation and a gradual shift in household portfolios of assets from traditional savings to higher-yielding investments. But this transformation is no challenge-free process. These include cybersecurity risks, digital fraud, and behavioral biases such as overconfidence in algorithmic suggestions. We indicate it offers a way to improve portfolio diversification and improve asset optimisation, but to do so requires significant financial education as well as appropriate regulation to tackle the possible systemic issues. Furthermore, we recommend promoting digital literacy, implementing consumer protection laws effectively, and developing inclusive FinTech. This paper thereby fills the current gap by connecting aspects of household engagement in FinTech innovation with behavioral finance through a holistic lens that describes how technological innovations impact household financial behavior.
