Does FinTech Compete with or Complement Bank Finance?

Abstract

We consider comprehensive data on crowdfunding in the U.S., including debt (marketplace lending), rewards, donations, and equity crowdfunding, to formally test for the first time if banks are complements or substitutes to crowdfunding. The data indicate that bank failures in a county are associated with a reduction in debt and rewards crowdfunding, and total crowdfunding (including donations and rewards as well, however, bank failures are statistically unrelated to those types of crowdfunding in our empirical setting). The data are consistent with bank failures being associated with a reduction in the aggregate number of entrepreneurs in a county, while the remaining entrepreneurs seeking crowdfunding are less reliant on external debt finance in their county. Overall, the data indicate crowdfunding and traditional bank finance are complements.

Keywords: Banks, Bank Loans, Bank Failure, Crowdfunding, FinTech

JEL Classification: G21, G23, G24, G28, G33, G38