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In the shadow of big tech lending

Author

Listed:
  • Chen, Yanting
  • Dong, Yingwei
  • Hu, Jiayin

Abstract

We investigate the impact of Big Tech lending on non-bank traditional lenders, which have a more overlapping clientele with Big Tech lenders than traditional banks. Our empirical methodology exploits geographical differences in Big Tech penetration ratios and adopts the instrumental variable (IV) approach using the FinTech payment adoption ratio and the distance to the Big Tech's headquarter. We find that the competition from Big Tech worsens the performance of branches facing stronger Big Tech competition by reducing the number of borrowers and the amount of loans. Moreover, branches in cities highly penetrated by Big Tech lending tighten the lending standard by reducing loan-to-value (LTV) ratios, measured as the approved loan amount per unit collateral value, while keeping the average collateral requirement unchanged. Our findings are consistent with the cream-skimming hypothesis that Big Techs possess better screening technology and reduce the quality of borrowers applying for traditional loans. Our results document novel changes in and responses of the non-bank traditional lending business in the Big Tech era.

Suggested Citation

  • Chen, Yanting & Dong, Yingwei & Hu, Jiayin, 2023. "In the shadow of big tech lending," China Economic Review, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:chieco:v:79:y:2023:i:c:s1043951x22001717
    DOI: 10.1016/j.chieco.2022.101913
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    More about this item

    Keywords

    Big tech; FinTech lending; Traditional loans; Non-bank financial institutions (NBFI); car equity loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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