Do Fintech Shadow Banks Compete with Technological Advantages? Evidence from Mortgage Lending
68 Pages Posted: 28 Oct 2022 Last revised: 22 Feb 2024
Date Written: February 21, 2024
This paper examines the purported innovativeness of fintech shadow banks relative to banks. Contrary to common perceptions of fintech's technological advantage, banks have exceeded fintech shadow banks in digital capital investments and patenting activities. As a result, while fintech initially charged higher mortgage rates without higher subsequent defaults, this premium has decreased and reversed. Nevertheless, fintech shadow banks investing heavily in digital capital can maintain their competitive edges over traditional banks regarding mortgage price, performance, and market share. Finally, fintech's shift to targeting underserved minorities to circumvent direct competition from banks may promote financial inclusion but potentially raise credit risk.
Keywords: Fintech, Shadow Bank, Mortgage, Digital Capital, Competition
JEL Classification: G21, G23, O31
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