Fintech Borrowers: Lax-Screening or Cream-Skimming?

The Review of Financial Studies (forthcoming)

73 Pages Posted: 16 Aug 2018 Last revised: 21 Oct 2020

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2018

Abstract

Personal credit is the fastest-growing segments of the consumer credit market, mainly driven by fintech lenders' staggering expansion. We show that fintech lenders acquire market share by first lending to higher-risk borrowers and then to safer borrowers, and mainly rely on hard information to make credit decisions. Fintech borrowers are significantly more likely to default than neighbor individuals with the same characteristics borrowing from traditional financial institutions. Furthermore, they tend to experience only a short-lived reduction in the cost of credit, because their indebtedness increases more than non-fintech borrowers a few months after loan origination. However, fintech lenders' pricing strategies are likely to take this into account.

Keywords: Fintech, Credit History, Self-Control, Present-Bias

JEL Classification: J2, L5

Suggested Citation

Di Maggio, Marco and Yao, Vincent, Fintech Borrowers: Lax-Screening or Cream-Skimming? (August 1, 2018). The Review of Financial Studies (forthcoming), Available at SSRN: https://ssrn.com/abstract=3224957 or http://dx.doi.org/10.2139/ssrn.3224957

Marco Di Maggio (Contact Author)

Harvard Business School ( email )

Soldiers Field
Baker Library 265
Boston, MA 02163
United States

HOME PAGE: http://https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vincent Yao

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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