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Can FinTech reduce disparities in access to finance? Evidence from the Paycheck Protection Program

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  • Erel, Isil
  • Liebersohn, Jack

Abstract

New technology promises to expand the supply of financial services to small businesses poorly served by banks. Does it succeed? We study the response of FinTech to financial services demand created by the introduction of the Paycheck Protection Program. FinTech is disproportionately used in ZIP codes with fewer bank branches, lower incomes, and more minority households, and in industries with fewer banking relationships. It is also greater in counties where the economic effects of the COVID-19 pandemic were more severe. Substitution between FinTech and banks is economically small, implying that FinTech mostly expands, rather than redistributes, the supply of financial services.

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  • Erel, Isil & Liebersohn, Jack, 2022. "Can FinTech reduce disparities in access to finance? Evidence from the Paycheck Protection Program," Journal of Financial Economics, Elsevier, vol. 146(1), pages 90-118.
    • Handle: RePEc:eee:jfinec:v:146:y:2022:i:1:p:90-118
    DOI: 10.1016/j.jfineco.2022.05.004
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    Cited by:

    1. Angela Guo & Mark E. Schweitzer, 2023. "Basic Facts on the Coverage of the Paycheck Protection Program," Working Papers 23-24, Federal Reserve Bank of Cleveland.
    2. Nam, Rachel J., 2022. "Open banking and customer data sharing: Implications for FinTech borrowers," SAFE Working Paper Series 364, Leibniz Institute for Financial Research SAFE.
    3. Carletti, Elena & Leonello, Agnese & Marquez, Robert, 2023. "Loan guarantees, bank underwriting policies and financial stability," Journal of Financial Economics, Elsevier, vol. 149(2), pages 260-295.
    4. Sergey V. Chernenko & Nathan Kaplan & Asani Sarkar & David Scharfstein, 2023. "Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program?," Staff Reports 1060, Federal Reserve Bank of New York.
    5. Huang, Yiping & Li, Xiang & Qiu, Han & Yu, Changhua, 2023. "BigTech credit and monetary policy transmission: Micro-level evidence from China," IWH Discussion Papers 18/2022, Halle Institute for Economic Research (IWH), revised 2023.
    6. Lopez, Jose A. & Spiegel, Mark M., 2023. "Small business lending under the PPP and PPPLF programs," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    7. Hasan, Iftekhar & Li, Xiang & Takalo, Tuomas, 2023. "Technological innovation and the bank lending channel of monetary policy transmission," BOFIT Discussion Papers 9/2023, Bank of Finland Institute for Emerging Economies (BOFIT).
    8. Olayinka Oyekola & Sofia Johan & Rilwan Sakariyahu & Oluwatoyin Esther Dosumu & Shima Amini, 2023. "Political institutions, financial liberalisation, and access to finance: firm-level empirical evidence," Discussion Papers 2307, University of Exeter, Department of Economics.
    9. Silva, Thiago Christiano & de Souza, Sergio Rubens Stancato & Guerra, Solange Maria & Tabak, Benjamin Miranda, 2023. "COVID-19 and bank branch lending: The moderating effect of digitalization," Journal of Banking & Finance, Elsevier, vol. 152(C).
    10. Gustavo Joaquim & J. Christina Wang, 2022. "What Do 25 Million Records of Small Businesses Say about the Effects of the PPP?," Working Papers 22-23, Federal Reserve Bank of Boston.
    11. Lai, Shaojie & Chen, Lihan & Wang, Qing Sophie & Anderson, Hamish D., 2023. "Bank competition and corporate employment: Evidence from the geographic distribution of bank branches in China," Journal of Banking & Finance, Elsevier, vol. 154(C).
    12. Michael Dinerstein & Constantine Yannelis & Ching-Tse Chen, 2023. "Debt Moratoria: Evidence from Student Loan Forbearance," NBER Working Papers 31247, National Bureau of Economic Research, Inc.
    13. Carletti, Elena & Leonello, Agnese & Marquez, Robert, 2023. "Loan guarantees, bank underwriting policies and financial fragility," Working Paper Series 2782, European Central Bank.
    14. Babina, Tania & Bahaj, Saleem & Buchak, Greg & De Marco, Filippo & Foulis, Angus & Gornall, Will & Mazzola, Francesco & Yu, Tong, 2024. "Customer data access and fintech entry: early evidence from open banking," Bank of England working papers 1059, Bank of England.
    15. Wu, Lei & Yu, Dongli & Lv, Yongbin, 2023. "Digital banking and deposit: Substitution effect of mobile applications on web services," Finance Research Letters, Elsevier, vol. 56(C).
    16. Brett Barkley & Mark Schweitzer, 2023. "Credit Availability for Minority Business Owners in an Evolving Credit Environment," Economic Development Quarterly, , vol. 37(3), pages 230-242, August.
    17. Olayinka Oyekola & Samuel Odewunmi, 2023. "The consequence of societal secrecy for financial constraints," Discussion Papers 2303, University of Exeter, Department of Economics.
    18. Daniel G. Neely & Gregory D. Saxton & Paul A. Wong, 2023. "Nonprofit Organizations’ Financial Obligations and the Paycheck Protection Program," Management Science, INFORMS, vol. 69(7), pages 4353-4361, July.
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    More about this item

    Keywords

    Financial technology; PPP; Coronavirus; Financial inclusion; Nonbank; Online bank;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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