Lending and Monitoring: Big Tech vs Banks

47 Pages Posted: 6 Dec 2022

See all articles by Matthieu Bouvard

Matthieu Bouvard

Toulouse School of Economics, University Toulouse Capitole (TSM-Research)

Catherine Casamatta

Toulouse School of Economics, University Toulouse Capitole (TSM-Research)

Rui Xiong

University Toulouse Capitole (TSM-Research)

Date Written: November 18, 2022

Abstract

We show that by lending to merchants and monitoring them, an e-commerce platform can price-discriminate between merchants with high and low financial constraints: the platform offers credit priced below market rates and designed to select merchants with lower capital or collateral while simultaneously increasing the platform's access fees. The credit market then becomes endogenously segmented with banks focusing on less financially constrained borrowers. Lending by the platform expands with its monitoring efficiency but can arise even when the platform is less efficient than banks at monitoring. Platform credit benefits more financially constrained merchants as well as buyers, but can hurt less financially constrained merchants if cross-side network effects with buyers are too small. The platform's propensity to offer credit and the financial inclusion of more constrained merchants depends on the platform's market power.

Keywords: Big Tech, banks, two-sided markets, financial constraints, financial inclusion, market power

JEL Classification: G21, G23

Suggested Citation

Bouvard, Matthieu and Casamatta, Catherine and Xiong, Rui, Lending and Monitoring: Big Tech vs Banks (November 18, 2022). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Available at SSRN: https://ssrn.com/abstract=4281121 or http://dx.doi.org/10.2139/ssrn.4281121

Matthieu Bouvard (Contact Author)

Toulouse School of Economics, University Toulouse Capitole (TSM-Research) ( email )

Toulouse
France

Catherine Casamatta

Toulouse School of Economics, University Toulouse Capitole (TSM-Research) ( email )

Toulouse
France

Rui Xiong

University Toulouse Capitole (TSM-Research) ( email )

2, rue du Doyen Gabriel Marty
Toulouse, 31042
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
243
Abstract Views
797
Rank
238,639
PlumX Metrics