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Financial technology in developing economies: A note on digital lending in Turkey

Author

Listed:
  • Karaman, Hakkı Deniz
  • Savaser, Tanseli
  • Tiniç, Murat
  • Tumer-Alkan, Gunseli

Abstract

We examine the differences in the loan performance of fintech and bank borrowers in Turkey. Using data of 5.5 million consumer loans by the fifth-largest private commercial bank in Turkey and its fintech subsidiary, we demonstrate that fintech borrowers are on average younger, better educated, have higher income and savings levels, pay less interest and have better credit history than traditional bank borrowers. Furthermore, fintech borrowers are less likely to default. Superior performance of fintech loans is driven by the fintech firm’s ability to identify creditworthy borrowers among individuals with low-credit scores. These results contrast with the earlier evidence for developed markets where fintech borrowers are found to be more risky.

Suggested Citation

  • Karaman, Hakkı Deniz & Savaser, Tanseli & Tiniç, Murat & Tumer-Alkan, Gunseli, 2021. "Financial technology in developing economies: A note on digital lending in Turkey," Economics Letters, Elsevier, vol. 207(C).
    • Handle: RePEc:eee:ecolet:v:207:y:2021:i:c:s0165176521002895
    DOI: 10.1016/j.econlet.2021.110012
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    References listed on IDEAS

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    1. Thomas Philippon, 2016. "The FinTech Opportunity," NBER Working Papers 22476, National Bureau of Economic Research, Inc.
    2. Shawn Cole & Thomas Sampson & Bilal Zia, 2011. "Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?," Journal of Finance, American Finance Association, vol. 66(6), pages 1933-1967, December.
    3. Erel, Isil & Liebersohn, Jack, 2020. "Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program," Working Paper Series 2020-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. Marco Di Maggio & Vincent Yao, 2021. "Fintech Borrowers: Lax Screening or Cream-Skimming?," Review of Financial Studies, Society for Financial Studies, vol. 34(10), pages 4565-4618.
    5. 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.
    6. David Yermack, 2018. "FinTech in Sub-Saharan Africa: What Has Worked Well, and What Hasn't," NBER Working Papers 25007, National Bureau of Economic Research, Inc.
    7. Huan Tang, 2019. "Peer-to-Peer Lenders Versus Banks: Substitutes or Complements?," Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1900-1938.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Digital lending; Innovation; Financial technology; Consumer loans;
    All these keywords.

    JEL classification:

    • 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
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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