Regulating Risk: The Emerging Political Economy of “FringeTech”

• In Event: Inequality, Race, and the Politics of the Fringe Economy

Abstract

In the absence of better wages or more robust welfare services, Americans often turn to private credit sources to make ends meet, leading some scholars to call the U.S. a “credit-welfare” state (Krippner 2011; Prasad 2012; SoRelle 2020). Recently, financial technologies—“fintech”—have dramatically reshaped the options available to people who rely on credit to get by. Many of these innovations offer digital, non-bank alternatives to existing fringe banking options (e.g., payday loans), which have historically targeted low-income, racially minoritized borrowers. At their best, these so-called “fringetech” services could replace more predatory forms of traditional fringe banking, like payday loans, enhancing financial inclusion by extending access to lower-cost, easy-to-use forms of financing to communities that have been historically underserved by traditional lenders. At their worst, fringetech products may expand the reach of the fringe economy, trapping more users into a cycle of predatory debt that diminishes financial wellbeing.

Despite the rapid growth of fringetech use, we know little about how this new frontier of the fringe economy interacts with the larger American political economy. Specifically, we have little knowledge about the circumstances under which people turn to fringetech in lieu of more traditional welfare programs or other financial alternatives to help make ends meet. Nor do we know how people’s experiences with fringetech innovations shape their preferences for regulation—a critical question as states and federal agencies begin to consider consumer protections for these new products. This paper combines original survey data and an original dataset of state-level of payday loan regulations to explore 1) how state policy subsystems – including financial regulations and welfare policy generosity – affect borrowers’ use of fringetech products and services and 2) how those dynamics shape people’s preferences for financial regulations of the emerging fringetech sector. The findings enhance our understanding of how fringetech innovations fit within the larger fringe economy as well as the credit welfare state, with consequences for inequality in financial and political power.

Authors

• Mallory E. SoRelle, Duke University

• Grace Elizabeth Beals, Cornell University