Regulatory constraint and small business lending: do innovative peer-to-peer lenders have an advantage?

Abstract

This paper investigates whether innovative Peer-to-Peer lending by FinTechs’ has a regulatory advantage over the big banks in respect of small business lending. We do this through the lens of the regulations imposed by the Dodd-Frank Act, using a difference-in-difference methodology. The Act tightened traditional bank credit standards on business loans, especially for small firms. However, the new FinTech lenders were not subject to the same regulatory burden. We find that traditional banks significantly reduced their lending to small businesses, as compared to their FinTech competitors. Our results suggest that while the Dodd-Frank Act constrained lending to small businesses, innovative new lending models gained a regulatory advantage and the Peer-to-Peer lenders capitalized on this.

The Impact of Digital Transformation on the Financial Ser-vices Industry: A Comprehensive Review

“…Secondly, the P2P lending model realizes the digitization of financial services and accelerates the process of digital transformation of the traditional financial industry. Digital financial services can not only improve service efficiency, but also greatly reduce operating costs, improve service quality, and better meet user needs [9]. In addition, through digitization, transactions between borrowers and investors can be more transparent, reducing fraud and risk.…”