Does Fintech Substitute for Banks? Evidence from the Paycheck Protection Program
70 Pages Posted: 10 Aug 2020 Last revised: 28 Jan 2023
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Can FinTech Reduce Disparities in Access to Finance? Evidence from the Paycheck Protection Program
Date Written: August 2020
New technology promises to expand the supply of financial services to small businesses poorly served by the banking system. Does it succeed? We study the response of FinTech to financial services demand created by the introduction of the Paycheck Protection Program (PPP). We find that FinTech is disproportionately used in ZIP codes with fewer bank branches, lower incomes, and a larger minority share of the population, as well as in industries with little ex ante small-business lending. FinTech’s role in PPP provision is also greater in counties where the economic effects of the COVID-19 pandemic were more severe. We estimate that more PPP provision by traditional banks causes statistically significant but economically small substitution away from FinTechs, implying that FinTech mostly expands the overall supply of financial services, rather than redistributing it.
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