Fintech Borrowers: Lax-Screening or Cream-Skimming?

74 Pages Posted: 2 Nov 2020 Last revised: 22 Nov 2021

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: October 2020

Abstract

We study the personal credit market using unique individual-level data covering fintech and traditional lenders. 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.

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Suggested Citation

Di Maggio, Marco and Yao, Vincent, Fintech Borrowers: Lax-Screening or Cream-Skimming? (October 2020). NBER Working Paper No. w28021, Available at SSRN: https://ssrn.com/abstract=3723258

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 )

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Cambridge, MA 02138
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Vincent Yao

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

P.O. Box 4050
Atlanta, GA 30303-3083
United States

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