Did FinTech steal the cheese of banks? Evidence from Chinese firm exports

The emergence and rapid growth of FinTech platforms may pose a potential threat to the traditional banking sector. In particular, the deposit draining or direct funds diversion of FinTech platforms may reduce bank loan supply to traditionally advantageous borrowers like exporters in the banking credit market. We investigate this potential threat by examining the impacts of FinTech emergence in China on its firm exports. We first construct a simple theoretical model, which shows that when FinTech emergence reduces bank loan supply, it will depress the exports of financially constrained firms, especially those heavily reliant on bank financing. Empirically, we find that the FinTech emergence in China was associated with reduced Chinese firm exports, particularly for firms with severe financial constraints, heavy reliance on bank loans and greater liquidity needs, but may be beneficial by providing alternative funding sources for sectors with greater financial vulnerability. The paper suggests that while FinTech challenges traditional bank loan supply and harms the advantageous borrowers in the bank credit market, it compensates those less reached by the banking sector, exhibiting characteristics of inclusive finance.