Banks’ consumer lending reaction to fintech and bigtech credit emergence in the context of soft versus hard credit information processing

Oskar Kowalewski (o.kowalewski@ieseg.fr) and Pawel Pisany (ppisany@inepan.pl)
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Pawel Pisany: Institute of Economics, Polish Academy of Sciences, Warsaw, Poland

No 2021-ACF-07, Working Papers from IESEG School of Management

Abstract: We analyze competition in the consumer lending segment between banks and financial technology (or “fintech”) companies (or “fintechs”) as well as giant technology (or “bigtech”) companies (or “bigtechs”) providing alternative credit. We use a database combining bank-level characteristics and country-level proxies for 72 countries during 2013–2018. We find that in developed markets, the relations between fintech/bigtech credit providers and banks are similar and competitive in nature. However, banks’ consumer lending grows simultaneously with fintech credit market development in emerging economies but decreases in the aftermath of bigtech credit emergence. Fintech credit seems to penetrate market segments not serviced by banks; thus, it plays a complementary role, but only in emerging economies. Bigtechs compete even more with banks and push some banking offers out of the market, both in emerging and developed economies. Furthermore, we show that domestic and privately owned banks are more negatively affected by competition from technology-based lending, particularly bigtech, compared to foreign banks. Thus, bigtech lending may be treated as a serious competition for banks’ relationship lending, based on soft credit information processing, provisioned traditionally by local banks.

Keywords: alternative credit; fintech; bigtech; financial inclusion; local banks; competition; relationship lending; soft credit information (search for similar items in EconPapers)
JEL-codes: G21 G23 O33 (search for similar items in EconPapers)
Pages: 36
Date: 2021-10
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fdg, nep-fle and nep-pay
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Journal Article: Banks' consumer lending reaction to fintech and bigtech credit emergence in the context of soft versus hard credit information processing (2022)
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