Credit card cash‐out as informal financing: Evidence from China

Abstract

Using a proprietary account-level database from a commercial bank in China, we document that credit card holders can ease their credit constraints through the practice of cash-out based on bogus transactions using credit cards. We find that such behaviour might be beneficial to both cardholders and banks. First, we find that a 1% increase in the cumulative number of credit card cash-out transactions lowers the probability of default by 9.59%. Second, for private businesses, a 1% increase in the number of abnormal cash-out transactions lowers overdue risk by 13.45%. Third, by lowering the overdue risk, the cardissuing bank earns a larger profit. Our results are consistent with the notion that unconventional credit card cashout can mitigate the extent of capital misallocation in emerging markets. K E Y W O R D Scredit card cash-out transaction, credit constraints, overdue risk, taoxian

Credit cards and commercial insurance participation: Evidence from urban households in China

“…As documented by Bird et al (1999) and Collins et al (2015), economic cycles shape the pattern of credit card debt among low‐income households. As Chinese households are generally credit depressed, the emergence of credit cards has effectively alleviated cardholders' credit constraints (Ma et al, 2019). It is also found that liquidity constrained households use credit cards as an alternative financing source for their small business (Yuan et al, 2021), and the access to credit cards also stimulates entrepreneurship (Xu et al, 2022) through the liquidity enhancement channel.…”

“…For instance, credit cards have been shown to play an essential role in financing Chinese households' small businesses. Ma et al (2019) demonstrate the role of credit cards as an informal channel through illegal cash‐out practices in alleviating Chinese business households' credit constraints. Xu et al (2022) show that credit cards are an important financing tool for SMEs, which are in general credit depressed.…”