Information Span and Credit Market Competition

We develop a credit market competition model that distinguishes between the information span (breadth) and signal precision (quality), capturing the emerging trend in fintech/non-bank lending where traditionally subjective (“soft”) information becomes more objective and concrete (“hard”). In a model with multidimensional fundamentals, two banks equipped with similar data processing systems possess hard signals about the borrower's hard fundamentals, and the specialized bank, who further interacts with the borrower, can also assess the borrower's soft fundamentals. Increasing the span of the hard information hardens soft information, enabling the data processing systems of both lenders to evaluate some of the borrower's soft fundamentals. We show that hardening soft information levels the playing field for the non-specialized bank by reducing its winner's curse. In contrast, increasing the precision or correlation of hard signals often strengthens the informational advantage of the specialized bank.