CAREER: The Emerging Political Economy of FringeTech Financial Services

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Millions of Americans struggle to make ends meet each month, but lower income people, younger people, and people from certain demographic categories are much less likely to have access to quality short-term financing to bridge budget gaps. Instead, these groups disproportionately turn to costly alternative financial services (AFS) like payday loans that can create a persistent cycle of debt. Recent innovations in financial technology (fintech) have dramatically reshaped the consumer loan market, including the rise of “fringetech”—digital financial technologies designed to compete with traditional AFS. Yet, we know little about the potentially significant economic and policy consequences of fringetech use for households who are struggling financially—especially low-wage workers who are relying on fringetech in growing numbers. This project will help advance national prosperity and welfare by expanding our understanding of who uses fringetech, how people’s reliance on fringetech is shaped by state rules that provide alternative financial resources (e.g., welfare), and how using fringetech influences people’s public behaviors. Findings will be disseminated to help inform emerging debates at the federal and state level about how best to regulate these new financial technologies. The project will also help train a diverse cohort of future scholars and practitioners in finance and fintech research. This CAREER research and teaching grant will achieve the following objectives: 1) analyze original, large-n survey data to systematically describe when and how different cohorts use fringetech to navigate liquidity problems; 2) utilize original qualitative borrower interviews and a dataset on state welfare, financial protection, and wage laws to analyze how state subsystems shape fringetech use for different cohorts; 3) analyze whether and how people’s fringetech use influences their preferences for economic rules and their public participation; 4) establish a topical lab and course, based on principles of inclusive pedagogy, to promote interest in and research concerning fringetech from students historically underrepresented in those fields; and 5) produce and disseminate research to inform emerging federal and state fringetech regulation, and create publicly available scorecards to help people track fringetech consumer protection in their state. This project will contribute to theories of 1) the welfare state, exploring how state welfare regimes influence financial decision-making; 2) participation, generating a theory of fringetech as a resource for civic engagement; and 3) feedback effects, analyzing how the design and implementation of state financial regulations shape people’s preferences. The project will generate novel quantitative and qualitative data about a highly salient regulatory issue for use by other researchers and practitioners.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.