Fintech Entry, Lending Market Competition, and Welfare

Xavier Vives and Zhiqiang Ye

No 19245, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study fintech entry and how it affects competition, investment, and welfare in a spatial model. We find that fintechs with inferior monitoring efficiency can successfully enter because of their superior flexibility in pricing. It follows that fintech borrowers are more likely to default than bank borrowers with similar characteristics. Higher bank concentration leads to higher fintech loan volume and quality. Fintech entry may induce banks’ exit and reduce investment; however, it will increase investment if inter-fintech competition is intense enough. Fintech entry will improve welfare if fintechs have high monitoring efficiency and inter-fintech competition intensity is intermediate.

JEL-codes: G21 G23 I31 (search for similar items in EconPapers)
Date: 2024-07
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