Does Fintech Lending Lower Financing Costs? Evidence From An Emerging Market

Jose Ornelas and Alexandre Pecora

No 571, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Using proprietary data of virtually all unsecured working capital loans to small businesses in Brazil, we find that online Peer-to-Peer (P2P) lenders focus on smaller and riskier firms already served by banks. P2P clients get lower interest rates compared to traditional banks. Once they borrow from P2Ps, they find a lower rate on subsequent bank loans, indicating that banks try to recapture runaway borrowers. In response to P2P entry, incumbent banks in oligopolistic markets decrease their lending rates by 2.5 percentage points and expand credit to older firms with difficulty accessing credit. We rationalize these findings in a structural IO model of the banking sector, where banks and P2Ps have different profit functions and compete for clients with risk heterogeneity. We use the estimated model to calculate welfare gains. P2Ps significantly increase social welfare in oligopolistic markets by offering lower interest rates to riskier borrowers and forcing the banks to do the same. Welfare gains range from 10% of the local output in municipalities with only one incumbent bank to 1% in those with five banks.

Date: 2022-11
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-pay and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps571.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:571

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().