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Bank-platform competition in the credit market

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  • Biancini, Sara
  • Verdier, Marianne

Abstract

We analyze the equilibrium in the credit market when a bank and a lending platform compete to offer credit to borrowers. The platform does not manage deposit accounts, but acts as an intermediary between the borrower and investor, offering a risky contract such that the investor is only reimbursed if the borrower is successful. We show that the platform business model of financial intermediation may generate unexpected effects in the credit market. In particular, investor participation in the platform sometimes decreases when the platform attracts better-quality borrowers. When it competes with the platform, depending on the respective distributions of borrower and investor types, the bank may expand the supply of credit to low-quality borrowers, or restrict it to high-quality borrowers. Bank-platform competition expands the total supply of credit, but has an ambiguous impact on borrower surplus, because some borrowers may have higher repayments.

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  • Biancini, Sara & Verdier, Marianne, 2023. "Bank-platform competition in the credit market," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:indorg:v:91:y:2023:i:c:s016771872300098x
    DOI: 10.1016/j.ijindorg.2023.103029
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    1. Verdier, Marianne, 2024. "Digital payments and bank competition," Journal of Financial Stability, Elsevier, vol. 73(C).

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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • G2 - Financial Economics - - Financial Institutions and Services

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