 Fintech entry, lending market competition, and welfareXavier Vives and Zhiqiang Ye Journal of Financial Economics, 2025, vol. 168, issue C 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 inter-fintech 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. Keywords: Digital technology; Monitoring; Credit; Artificial intelligence; Big data; Price discrimination (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:eee:jfinec:v:168:y:2025:i:c:s0304405x25000480 DOI: 10.1016/j.jfineco.2025.104040 Access Statistics for this article Journal of Financial Economics is currently edited by G. William Schwert More articles in Journal of Financial Economics from Elsevier |
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