Smart Lending

33 Pages Posted: 29 Nov 2023

See all articles by Mario Milone

Mario Milone

University of California, San Diego (UCSD) - Rady School of Management

Date Written: November 9, 2023


This paper shows that data-based screening technologies can increase
the cost of financial intermediation. The use of data in the lending
process reduces the acquisition of soft information by traditional
lenders, which harms already constrained borrowers. Cross-sectional
difference in screening efficiency arises due to heterogeneous representation
of borrowers in the data. Screening is more efficient for borrowers
with larger historical lending data. When traditional and technological
lenders coexist, the over-represented borrowers raise funds from technological
lenders while under-represented ones are served by traditional lenders
who can complement hard information by acquiring soft information.
The intermediation cost for traditional lenders is increased by
the existence of technological lenders. I identify conditions under
which traditional lenders benefit from restricting their own access
to data-processing technology when competing against technological

Keywords: Banking, Financial Constraints, Data, Machine Learning, AI

JEL Classification: G21, C02

Suggested Citation

Milone, Mario, Smart Lending (November 9, 2023). Available at SSRN: or

Mario Milone (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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