Fintech Entry and Credit Market Competition

55 Pages Posted: 27 Apr 2021

See all articles by Yinxiao Chu

Yinxiao Chu

University of International Business and Economics (UIBE) - School of Banking and Finance

Jianxing Wei

University of International Business and Economics (UIBE) - School of Banking and Finance

Date Written: April 16, 2021

Abstract

This paper presents a spatial model to analyze the effects of the entry of Fintech lenders on credit market competition and welfare. In the model, banks compete with a Fintech lender for borrowers under asymmetric information. Both types of lenders can screen borrowers before making a loan, and their signals are conditionally independent and asymmetric. The Fintech lender will enter the market if its screening ability is sufficiently high or the credit market is not very competitive. Increased competition from Fintech entrants erodes banks' profitability. Contrary to the standard view, Fintech entry could hurt borrowers' access to credit and worsen allocative efficiency. Fintech entry crowds out banks in the long run and may reduce social welfare.

Keywords: Credit market, Fintech, Screening, Social welfare

JEL Classification: D82; G21; L13; L15

Suggested Citation

Chu, Yinxiao and Wei, Jianxing, Fintech Entry and Credit Market Competition (April 16, 2021). Available at SSRN: https://ssrn.com/abstract=3827598 or http://dx.doi.org/10.2139/ssrn.3827598

Yinxiao Chu

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Jianxing Wei (Contact Author)

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

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