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Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program

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  • Isil Erel
  • Jack Liebersohn

Abstract

New technology promises to expand the supply of financial services to small businesses poorly served by the banking system. Does it succeed? We study the response of FinTech to financial services demand created by the introduction of the Paycheck Protection Program (PPP). We find that FinTech is disproportionately used in ZIP codes with fewer bank branches, lower incomes, and a larger minority share of the population, as well as in industries with little ex ante small-business lending. FinTech’s role in PPP provision is also greater in counties where the economic effects of the COVID-19 pandemic were more severe. We estimate that more PPP provision by traditional banks causes statistically significant but economically small substitution away from FinTechs, implying that FinTech mostly expands the overall supply of financial services, rather than redistributing it.

Suggested Citation

  • Isil Erel & Jack Liebersohn, 2020. "Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program," NBER Working Papers 27659, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27659
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    More about this item

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services
    • 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
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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