Does Fintech Substitute for Banks? Evidence from the Paycheck Protection Program

70 Pages Posted: 10 Aug 2020 Last revised: 28 Jan 2023

See all articles by Isil Erel

Isil Erel

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Jack Liebersohn

University of California, Irvine

Multiple version iconThere are 2 versions of this paper

Date Written: August 2020

Abstract

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.

Suggested Citation

Erel, Isil and Liebersohn, Jack, Does Fintech Substitute for Banks? Evidence from the Paycheck Protection Program (August 2020). NBER Working Paper No. w27659, Available at SSRN: https://ssrn.com/abstract=3670494

Isil Erel (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

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Jack Liebersohn

University of California, Irvine ( email )

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