The Real Effects of FinTech Lending on SMEs: The Financial Flexibility Channel

Abstract

We study the effect of FinTech platforms on small business lending markets and real economic activity using loan application data. We find that FinTech serves creditworthy businesses that already have access to bank credit, allowing them to obtain long-term unsecured loans and reduce exposure to lower-quality banks. Firms with access to Fintech loans increase investment, employment, and output, compared to those whose loan applications are rejected. We identify these effects by exploiting exogenous variation in the probability of obtaining a FinTech loan due to the local presence of bank branches. Our findings suggest that FinTech lending reduces bank dependence and spurs small business growth.

Keywords: FinTech, SMEs, Peer-to-Business lending, Small business lending

JEL Classification: G21, G23, O33