Do Fintech Shadow Banks Compete with Technological Advantages? Evidence from Mortgage Lending

Abstract

This paper examines the supposed technological advantage of fintech shadow banks over traditional banks. Despite fintech's reputation for innovation and cutting-edge technology, traditional banks have invested more in digital capital and generated significantly more patents in the past decade. While fintech shadow banks could charge higher rates initially without higher defaults, this premium has decreased and reversed. However, investing in digital capital can help fintech shadow banks better withstand competition from traditional banks. Finally, fintech shadow banks have been accepting more minority borrower applications in recent years, indicating that they promote financial inclusion to circumvent direct competition from traditional banks.

Keywords: Fintech, Shadow Bank, Mortgage lending, Patent, Digital capital, Competition

JEL Classification: G21, G23, O31