FinTech Lending under Austerity

Abstract

We document shortfalls in public welfare spending as a significant growth driver of peer-to-peer (P2P) lending. By analyzing the asymmetric rollback of the welfare state under the UK's 2010-19 austerity program as shocks to local household incomes, we find that welfare cuts increased demand for P2P consumer loans, especially in areas with greater banking and digital deprivation. P2P loans issued in austerity-affected areas are also costlier, reflecting the platform's risk pricing sensitivity to higher default rates occurring in those areas. Overall, our findings suggest that P2P lending can mitigate welfare spending cuts, particularly aiding households in deprived areas.

Keywords: JEL classification: D12, D14, G23 Fintech, Financial Technology, Peer-to-Peer Lending, Austerity, Disintermediation, Reintermediation

JEL Classification: D12, D14, G23