 Fintech Entry, Lending Market Competition, and WelfareXavier Vives and Zhiqiang Ye No 19245, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: We provide a spatial framework to study competition between banks and fintechs in the lending market and examine the impact on investment and welfare. Based on the key differences between banks and fintechs, we derive results consistent with the empirical evidence available. We find that fintechs with inferior monitoring efficiency can successfully enter because of their superior flexibility in pricing and that higher bank concentration leads to higher fintech loan volume. If fintechs and banks have similar funding costs, fintech borrowers pay lower loan rates and have higher default rates than bank borrowers with similar characteristics; however, the result will flip if fintechs have much higher funding costs than banks. The advantage of fintechs in offering convenience can also induce them to charge higher loan rates than banks. Fintech entry will improve welfare if fintechs have high monitoring efficiency and interfintech competition intensity is intermediate. Fintech entry may induce banks’ exit and reduce investment; however, it will increase investment if inter-fintech competition is intense enough. JEL-codes: G21 G23 I31 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19245 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
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