Bank Intermediation in Times of Digitalized Corporate Customers and Competitors? — Relationship Lending as Safe Haven

Abstract

Within a two-dimensional framework, this article provides an literature-based discussion of how banks' corporate lending business is affected by digitization. On the one hand, technological advances induced by digitization are changing internal processes and business models among the banks' corporate customers. This creates a change in customer requirements and demand for financing of digitization projects. On the other hand, alternative providers of corporate loans are emerging in the form of online marketplace lenders.

We first note that there is a funding gap for digitization projects that could hamper progress in technological development. Investments in digital technologies differ from “traditional” investments in their lack of tangible assets and a high degree of uncertainty about the project outcome which could be the main drivers of this funding gap. As digital marketplace lenders experience high growth rates especially in past periods of reduced credit supply by banks, we argue that marketplace lenders could fill this gap. Under this assumption, we discuss whether, marketplace lenders can fulfil essential intermediation functions and conclude that traditional competitive advantages of banks over marketplace lenders are diminishing. We therefore extend our discussion and examine the extent to which the concept of relationship lending provides banks with competitive advantages over marketplace lending. We conclude banks need to focus on the personal approach. Of particular importance is the expertise of the loan officer in evaluating innovation projects, whereas interpersonal trust, customer orientation and service quality form the basis for the continuity of customer loyalty in competition with fintech lenders.

Keywords: Relationship lending; Online lending marketplaces; P2P lending; Financial intermediation; Bank lending; Innovation; Digitization; Fintech; Financial Innovation

JEL Classification: D82, G20, G21, G23, G24, G32, O33