Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program

Ohio State University - Fisher College of Business | Isil Erel and Jack Liebersohn | Sep 20, 2020

Banks versus fintechs - Does FinTech Substitute for Banks?  Evidence from the Paycheck Protection Program

Abstract:

New technology promises to expand the supply of financial services to borrowers poorly served by the banking system. Does it succeed? We study the response of FinTech and nonbank lenders to financial services demand created by the introduction of the Paycheck Protection Program (PPP).

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Online banks and nonbank financial institutions are disproportionately used in ZIP codes located with fewer bank branches, and in industries with little ex ante small-business lending.

Their role in filling this lending gap is also magnified in counties where the economic effects of the COVID-19 pandemic were greater.

Using the predicted responsiveness of banks to the program, we show that borrowers were more likely to get a FinTech-enabled loan if they are located in ZIP codes where local banks were unlikely to originate PPP loans.

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