FinTech Lending with LowTech Pricing

Fisher College of Business Working Paper No. 2023-03-008

Charles A. Dice Center Working Paper No. 2023-08

52 Pages Posted: 12 Apr 2023

See all articles by Mark J. Johnson

Mark J. Johnson

Brigham Young University - Department of Finance

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Jason Lee

U.S. Securities and Exchange Commission

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 11, 2023

Abstract

FinTech lending—known for using big data and advanced technologies—promised to break away from the traditional credit scoring and pricing models. Using a comprehensive dataset of FinTech personal loans, our study shows that loan rates continue to rely heavily on conventional credit scores, including 45% higher rates for nonprime borrowers. Other known default predictors are often neglected. Within each segment (prime/nonprime) loan rates are not very responsive to default risk, resulting in realized loan-level returns decreasing with risk. The pricing distortions result in substantial transfers from nonprime to prime borrowers and from low- to high-risk borrowers within segment.

Keywords: FinTech, Personal loans, Credit score, Nonprime borrowers, Market segmentation

JEL Classification: G21, G23, G50

Suggested Citation

Johnson, Mark J. and Ben-David, Itzhak and Lee, Jason and Yao, Vincent, FinTech Lending with LowTech Pricing (April 11, 2023). Fisher College of Business Working Paper No. 2023-03-008, Charles A. Dice Center Working Paper No. 2023-08, Available at SSRN: https://ssrn.com/abstract=4396502 or http://dx.doi.org/10.2139/ssrn.4396502

Mark J. Johnson

Brigham Young University - Department of Finance ( email )

Provo, UT 84602
United States

HOME PAGE: http://sites.google.com/view/markjohnson/home

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Jason Lee

U.S. Securities and Exchange Commission ( email )

Vincent Yao

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

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