We investigate the patterns and performance of banks’ investments in fintech ventures in the United States. We document that banks, as compared to independent venture capitalists (IVCs), invest a larger proportion in fintech startups and achieve a higher IPO exit rate. The better exit performance is neither explained by banks’ tendency to invest in later-round or larger deals, nor contributed by banks’ following successful peer IVCs. Banks’ outperformance is mainly concentrated in fin-native fintech startups and those whose business operations overlap with banks’ core business segments, which is consistent with the corporate venture capital (CVC) literature and the conjecture that banks possess unique industry expertise that facilitates their selection of fintech startups. In addition, banks participate more on the boards of fintech startups than of other ventures, implying that the better investment performance is not purely driven by selection

Using a sample of U.S. community banks and FinTech loans data from LendingClub and Prosper, I find that banks’ future change in risk-taking is positively associated with their current exposure to FinTech penetration. Path analysis shows that FinTech penetration influences bank risk-taking through the erosion of bank charter value. Additionally, cross-sectional analysis shows that the risk-increasing effect of FinTech penetration is stronger for banks with lower ex-ante charter value and greater reliance on hard information. My results are robust to alternative measures of bank risk-taking and FinTech penetration, propensity score matching, and a battery of sensitivity and additional tests. Regarding policy implications, the findings imply that reasonable estimations of banks’ charter value may serve as an early indicator of banks’ future risk-taking incentives

This paper provides micro-level evidence on how FinTech adoption affects household consumption and consumption inequality. Our hypothesis is that through FinTech's payment facilitation and credit constraint alleviation, higher FinTech adoption by households fosters financial inclusion by promoting consumption. Financial inclusion is especially increased for households that traditionally consumed less, which suggests that FinTech could reduce consumption inequality. By combining region-level FinTech adoption measures with household-level representative data of consumption, we find that higher FinTech adoption by a household increases household consumption and reduces consumption inequality across households. Using the distance to Hangzhou from the city in which a household is located as an instrument variable to capture the exogenous variation in FinTech adoption yields results with similar economic and statistical significance. In addition, traditional financial infrastructure is still a prerequisite for the benign distributive impacts provided by FinTech credit, which demonstrates the need for further welfare-improving policies. Our paper adds to the literature by documenting FinTech to be a market force that contributes to financial inclusion

Analyzing a sample of Chinese firms, we find that when companies receive more coverage from FinTech advisory firms, their stock prices move less in tandem with the overall market. This suggests that FinTech coverage improves how accurately stock prices reflect firm-specific information. Our results hold true across multiple testing methods and alternative ways of measuring stock price synchronicity. Further analysis shows that FinTech coverage reduces stock price synchronicity primarily by addressing information gaps between companies and investors. Additionally, greater FinTech coverage improves stock liquidity and lowers the costs of raising debt or equity financing. When examining the topics covered by FinTech firms, we find that diverse coverage topics are linked to lower stock price synchronicity, with discussions on finance, corporate governance, and negative sentiment playing a particularly effective role. Finally, a textual analysis reveals that FinTech coverage includes significantly more firm-specific information than traditional analyst reports

Fintech and big tech companies are making rapid inroads into credit markets. We hand construct a global database of fintech and big tech lending volumes for 79 countries over 2013–2018. Using a panel regression analysis, we find these new forms of digital lending are larger in countries with higher GDP per capita (albeit at a declining rate), where banking sector mark-ups are higher, and where banking regulation is less stringent. We also find that these alternative forms of credit are more developed where the ease of doing business is greater, investor protection disclosure and the efficiency of the judicial system are more advanced, and where bond and equity markets are more developed. Overall, fintech and big tech credit seem to complement other forms of credit, rather than substitute for them

Does the recent proliferation of technology in lending process have an impact on business loan market competition? Using a theoretical model that assumes heterogeneity in lenders’ screening abilities and borrowers’ investment horizons, we show that FinTech (Traditional) lenders primarily supply unsecured (asset-backed) loans to borrowers with short-term (long-term) projects. The model builds on the interplay between screening ability and collateral requirements to characterize the competition between two ex-ante symmetric lenders. Lenders use screening technology and collateral requirements to mitigate competition and restrict the supply of credit through an endogenous segmentation of the loan market. As information technology improves, the effect on credit supply and equilibrium interest rates becomes more nuanced and depends on the market segment. The results offer a supply-side explanation for the growth of unsecured lending

We examine how financial technology affects households in terms of personal bankruptcy by leveraging exogenous variation in marketplace credit supply to Connecticut and New York residents. We document a persistent rise in bankruptcies in the affected states following sharp decreases in marketplace lending, particularly among low-income households and in areas where marketplace loans for financing medical bills are severely rationed. Borrowers’ indebtedness or local economic conditions do not explain the results. The supply of other consumer credit by banks and finance companies remains unaffected, suggesting that the observed increase in bankruptcies arises principally from reversing access to marketplace credit

This paper explores the determinants of financial development by focusing on the role played by barriers to the diffusion of financial technology. These barriers are measured using human genetic distance from the technology frontier. The results based on cross-sectional data for 123 countries suggest that genetic distance to the global frontier has an economically and statistically significant effect on financial development, in that countries that are genetically far from the technology leader tend to have lower levels of financial development. Genetic distance is found to have the largest effect, even after controlling for other determinants of financial development established in the literature. These findings indicate that cultural barriers to the diffusion of financial technology across borders impact financial development by influencing the follower countries’ ability to adopt and adapt innovations from the frontier

How do banks offer and price mortgages when an online platform enables them to reach regions where they have no branches? With unique data on responses from differently located banks to each applying household and a shift-share instrument for market concentration, we find banks to make more and cheaper offers to more concentrated local markets. We rationalize this as investments in lucrative market shares given customer switching costs. Banks also improve their inter-regional portfolio diversification with more attractive offers to regions more complementary to their home locales. Finally, banks` choices become increasingly automated, reducing their operating costs.