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Fintech Lending and Credit Market Competition

Published online by Cambridge University Press:  15 May 2023

Yinxiao Chu  and
Jianxing Wei Open the ORCID record for Jianxing Wei [Opens in a new window]
Yinxiao Chu
Affiliation:
University of International Business and Economics School of Banking and Finance [email protected]
Jianxing Wei*
Affiliation:
University of International Business and Economics School of Banking and Finance
*
[email protected] (corresponding author)
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Abstract

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This article studies how the rise of financial technology (Fintech) lending affects credit access, interest rates, and social welfare. We consider a lending competition model with two incumbent banks and a Fintech lender, which use different information and technologies to assess borrower creditworthiness. We show that Fintech lending could negatively affect high-quality borrowers’ access to credit when the Fintech lender’s screening accuracy is superior to that of the banks. Furthermore, Fintech lending may worsen the allocative efficiency of credit and reduce social welfare under some conditions. Analytical and numerical results suggest that Fintech lending mostly reduces the expected interest rates.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 5 , August 2024 , pp. 2199 - 2225
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee and Thierry Foucault (the editor) for their helpful comments and suggestions that improved this article substantially. We are grateful to Zhao Li, Kebin Ma, and Zhen Zhou for valuable comments and suggestions. Wei’s research is supported by the National Natural Science Foundation of China (Grant No. 72003030). Any remaining errors are our own.

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