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Innovation in the Retail Banking Industry: The Diffusion of Credit Scoring

Marcello Bofondi and Francesca Lotti

Review of Industrial Organization, 2006, vol. 28, issue 4, 343-358

Abstract: We study technology diffusion in the retail banking industry. Our contribution to the empirical literature is twofold: Firstly, we explore technology diffusion in the financial sector, whose relevance has often been neglected; secondly we focus on credit scoring adoption, a relevant process innovation still under-explored. Estimating a set of duration models, we analyze the patterns of diffusion of this technology among Italian banks. We find that credit scoring is firstly introduced by large banks with broad branch networks, which can fully exploit scale economies. We present robust evidence that banks with large market shares operating in more concentrated markets are early adopters, providing a direct support of the Schumpeterian hypothesis that market power enhances innovation. Copyright Springer 2006

Keywords: credit scoring; innovation; mortgage loans; retail banks; technology diffusion; G21; O31; C41 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s11151-006-9101-0

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Handle: RePEc:kap:revind:v:28:y:2006:i:4:p:343-358