Fintech Borrowers: Lax-Screening or Cream-Skimming?

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