Digital payment, money market fund and investment behavior

Does digital payment affect the flow patterns in money market funds? In recent years, some money market funds (MMFs) have been introduced to digital payment platforms. The users can hold these MMFs and directly use them for transactions. This additional liquidity may influence investor behavior. Using individual-level data from the world's largest digital payment platform Alipay, this paper investigates the impact of digital payment on flow patterns in MMFs. We show that compared with traditional MMFs, the MMFs combined with digital payment are more attractive to investors, and flows in these MMFs are less sensitive to their past performances. Furthermore, in the period with high illiquidity, digital payment decreases the outflows from MMFs, indicating that digital payment potentially decreases liquidity risk and enhances the stability of the money market.