What Drives Racial Minorities to Use Fintech Lending? Evidence from a Structural Estimation

70 Pages Posted: 27 Oct 2021 Last revised: 7 Sep 2023

See all articles by Celine Yue Fei

Celine Yue Fei

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: October 24, 2021

Abstract

Using linked datasets on Paycheck Protection Program and Yelp restaurants, I document that minority-owned businesses borrow more from fintech lenders than traditional lenders. To understand the mechanisms underlying this phenomenon, I extend and estimate Schwert (2018)'s two-sided matching model between borrowers and lenders. I find that fintech-minority matches generate greater values than other matches, suggesting taste-based discrimination of Becker (1957). Counterfactual analysis shows the importance of this value channel. Disabling this channel reduces minority borrowers' usage of fintech by approximately 70%. Disabling lending relationships and bank branch channels reduces minority borrowers' use of fintech by less than 2%.

Keywords: Racial Barriers, Minority-owned Businesses, Fintech, Paycheck Protection Program, Small Business Lending, Bank Lending, Nonbank Lending

JEL Classification: D63, G2, G21, G28, H25, M14

Suggested Citation

Fei, Celine Yue, What Drives Racial Minorities to Use Fintech Lending? Evidence from a Structural Estimation (October 24, 2021). Available at SSRN: https://ssrn.com/abstract=3949148 or http://dx.doi.org/10.2139/ssrn.3949148

Celine Yue Fei (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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