The Promises and Pitfalls of WealthTech: Evidence from Online Marketplace Lending
73 Pages Posted: 8 May 2020 Last revised: 21 Oct 2020
Date Written: September 25, 2020
WealthTech (WT) holds the promise to “democratize financial service” by serving the underserved market segments with affordable, quality, and transparent wealth management services. This paper assesses the competence and integrity of WT using a unique, order-level data set on WT vis-à-vis human bidders from a Chinese online marketplace lending platform. We find WT outperforms human investors by a significant margin due to WT’s informational and speed advantage to cherry-pick high quality and mispriced investment opportunities. We also find a misalignment of interest when the platform’s private benefit in loan origination conflicts with WT users’ returns. In a dynamic view, we show the return of both WT users and non-WT users declines as the WT dominates the market. We also discuss the corresponding regulatory strategies.
Keywords: WealthTech, Algorithmic trading, Online Marketplace Lending, Conflict of interest, Regulation, Robo-advisor
JEL Classification: G14, G21, G23, G28, K2
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