Fintech Borrowers: Lax Screening or Cream-Skimming?

Marco Di Maggio · Vincent Wenxiong Yao

280 citations0/0 files storedReview of Financial Studies

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FinTech, Crowdfunding, Digital Finance Banking stability, regulation, efficiency Microfinance and Financial Inclusion

Abstract

Abstract We study the personal credit market using unique individual-level data covering fintech and traditional lenders. We show that fintech lenders acquire market share by lending first to higher-risk borrowers and then to safer borrowers, and rely mainly on hard information to make credit decisions. Fintech borrowers are significantly more likely to default than neighbor individuals with the same characteristics borrowing from traditional financial institutions. Furthermore, they tend to experience a short-lived reduction in the cost of credit, because their indebtedness increases more than non-fintech borrowers after loan origination. However, fintech lenders’ pricing strategies are likely to take this into account.

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References

1981Credit Rationing in Markets with Imperfect Information 2018Fintech, regulatory arbitrage, and the rise of shadow banks 2019The Role of Technology in Mortgage Lending 2018Peer-to-Peer Lenders Versus Banks: Substitutes or Complements?2015Screening Peers Softly: Inferring the Quality of Small Borrowers 2017Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging

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2023How does digital inclusive finance affect economic resilience: Evidence from 285 cities in China 2021Fintech in the time of COVID−19: Technological adoption during crises 2022Can FinTech reduce disparities in access to finance? Evidence from the Paycheck Protection Program 2021P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?2022FinTech Lending 2022How does the development of digital financial inclusion affect the total factor productivity of listed companies? Evidence from China 2020Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program

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