Do fintech lenders penetrate areas that are underserved by traditional banks?

Abstract

Fintech has been playing an increasing role in shaping financial and banking landscapes. In this paper, we use account-level data from LendingClub and Y-14M data reported by U.S. banks with assets over $50 billion to examine whether the fintech lending platform could expand credit access to consumers. We find that LendingClub's consumer lending activities have penetrated areas that may be underserved by traditional banks, such as in highly concentrated markets and in areas that have fewer bank branches per capita. We also find that the portion of LendingClub loans increases in areas where the local economy is not performing well.

The roles of alternative data and machine learning in fintech lending: Evidence from the LendingClub consumer platform

“…Our previous research in Jagtiani and Lemieux (2018) presented evidence that fintech lenders fill credit gaps in areas where bank offices may be less available and provide credit to creditworthy borrowers that banks may not be serving. Our further research in this paper finds that loans from fintech lenders seem to be "appropriately" risk priced.…”

“…For example, some fintech lenders can identify whether the loan applications are submitted from a high-crime area or in an area where factories are being shut down or relocated. Previous studies have found evidence that local economic information could serve as a possible relevant source of nontraditional information by fintech lenders (Alyakoob, Rahman, & Wei, 2017;Bertsch, Hull, & Zhang, 2016;Buchak, Matvos, Piskorski, & Seru, 2017;Chen, Hanson, & Stein, 2017;Crowe & Ramcharan, 2013;Havrylchyk, Mariotto, Rahim, & Verdier, 2018;Jagtiani & Lemieux, 2018).…”

“…At least 80% of LendingClub consumer loans in each year were used for this purpose. As of 2015, about 90% of the Lend-ingClub consumer loans are specified as being used to pay off credit card balances or for debt consolidation (Jagtiani & Lemieux, 2018). For most of the analysis, we focus on 725,800 loans that were originated from 2010 to 2015 as data from the 2007-2009 origination vintages are less reliable and the volume was initially very small.…”

Panel Econometric Analysis on Mobile Payment Transactions and Traditional Banks Effort toward Financial Accessibility in Sub-Sahara Africa

“…Access to funds pertains to the ability of individuals or businesses to obtain financial services within reach. Several factors are documented to affect access to funds in developing countries, but the unwillingness of traditional banks to invest in areas deemed unprofitable remains a key challenge [4]. Per statistics, financial access remains a key challenge in most developing economies due to the nature of settlement and economic conditions, which places majority in rural areas undesired by traditional banks.…”

“…Further, statistics indicate that sub-Sahara Africa alone holds over 50% share of the total global customer base, and with the mobile phone penetration expected to grow up to 500 million subscribers by the year 2020, the region has huge potential in this domain of FinTech (the Mobile Economy Sub-Saharan Africa 2018 report). The introduction of mobile payment in sub-Sahara Africa championed mainly by Telecos has been hailed as one of the grand financial innovations to improve the status of financial inclusion in the region as a result of the failed efforts of traditional banks to financially include many in preceding decades [3,4].…”