IDEAS home Printed from https://ideas.repec.org/a/eee/jfinin/v59y2024ics1042957324000299.html
   My bibliography  Save this article

Financial technology and relationship lending: Complements or substitutes?

Author

Listed:
  • Kutzbach, Mark J.
  • Pogach, Jonathan

Abstract

We describe the dimensions along which bank technologies differ from fintech competitors and construct a novel measure of a bank’s technology based upon its overlap with fintech firms in terms of granular product installation data. A one standard deviation increase in our financial technology measure is associated with an 8.3 percentage point increase in Paycheck Protection Program (PPP) loans in 2020Q2. We show that smaller banks benefited more from marginal technology gains, that technology facilitated out-of-area lending, and that technology complemented small banks’ branch-based in-area lending. In a difference-in-differences analysis, we show an outsized increase in small business lending growth in 2020 for high tech small banks relative to their peers.

Suggested Citation

  • Kutzbach, Mark J. & Pogach, Jonathan, 2024. "Financial technology and relationship lending: Complements or substitutes?," Journal of Financial Intermediation, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:jfinin:v:59:y:2024:i:c:s1042957324000299
    DOI: 10.1016/j.jfi.2024.101101
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042957324000299
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfi.2024.101101?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lopez, Jose A. & Spiegel, Mark M., 2023. "Small business lending under the PPP and PPPLF programs," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    2. Nicola Pierri & Yannick Timmer, 2020. "Tech in Fin before FinTech: Blessing or Curse for Financial Stability?," CESifo Working Paper Series 8067, CESifo.
    3. Kovner, Anna & Vickery, James & Zhou, Lily, 2015. "Do big banks have lower operating costs?," Journal of Financial Perspectives, EY Global FS Institute, vol. 3(1), pages 157-196.
    4. Lei Li & Philip E. Strahan & Song Zhang, 2020. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," NBER Working Papers 27256, National Bureau of Economic Research, Inc.
    5. Buchak, Greg & Matvos, Gregor & Piskorski, Tomasz & Seru, Amit, 2018. "Fintech, regulatory arbitrage, and the rise of shadow banks," Journal of Financial Economics, Elsevier, vol. 130(3), pages 453-483.
    6. Berger, Allen N. & DeYoung, Robert, 2006. "Technological Progress and the Geographic Expansion of the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1483-1513, September.
    7. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    8. Zhiguo He & Sheila Jiang & Douglas Xu & Xiao Yin, 2022. "Investing in Lending Technology: IT Spending in Banking," NBER Working Papers 30403, National Bureau of Economic Research, Inc.
    9. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 407-443.
    10. Berger, Allen N, 2003. "The Economic Effects of Technological Progress: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 141-176, April.
    11. Tetyana Balyuk & Nagpurnanand R. Prabhala & Manju Puri, 2020. "Indirect Costs of Government Aid and Intermediary Supply Effects: Lessons From the Paycheck Protection Program," NBER Working Papers 28114, National Bureau of Economic Research, Inc.
    12. David R. Bell & Santiago Gallino & Antonio Moreno, 2018. "Offline Showrooms in Omnichannel Retail: Demand and Operational Benefits," Management Science, INFORMS, vol. 64(4), pages 1629-1651, April.
    13. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    14. Hernando, Ignacio & Nieto, Maria J., 2007. "Is the Internet delivery channel changing banks' performance? The case of Spanish banks," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1083-1099, April.
    15. DeYoung, Robert & Lang, William W. & Nolle, Daniel L., 2007. "How the Internet affects output and performance at community banks," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1033-1060, April.
    16. Chernenko, Sergey & Scharfstein, David, 2024. "Racial disparities in the Paycheck Protection Program," Journal of Financial Economics, Elsevier, vol. 160(C).
    17. Lei Li & Philip E Strahan & Song Zhang, 2020. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 472-500.
    18. Erel, Isil & Liebersohn, Jack, 2022. "Can FinTech reduce disparities in access to finance? Evidence from the Paycheck Protection Program," Journal of Financial Economics, Elsevier, vol. 146(1), pages 90-118.
    19. Mi Zhou & Dan Geng & Vibhanshu Abhishek & Beibei Li, 2020. "When the Bank Comes to You: Branch Network and Customer Omnichannel Banking Behavior," Information Systems Research, INFORMS, vol. 31(1), pages 176-197, March.
    20. Efraim Benmelech & Jun Yang & Michal Zator, 2023. "Bank Branch Density and Bank Runs," NBER Working Papers 31462, National Bureau of Economic Research, Inc.
    21. Anuj Kumar & Amit Mehra & Subodha Kumar, 2019. "Why Do Stores Drive Online Sales? Evidence of Underlying Mechanisms from a Multichannel Retailer," Service Science, INFORMS, vol. 30(1), pages 319-338, March.
    22. Li, Lei & Strahan, Philip E., 2021. "Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships, and the COVID Crisis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(7), pages 2411-2438, November.
    23. John M. Griffin & Samuel Kruger & Prateek Mahajan, 2023. "Did FinTech Lenders Facilitate PPP Fraud?," Journal of Finance, American Finance Association, vol. 78(3), pages 1777-1827, June.
    24. Manasa Gopal & Philipp Schnabl, 2022. "The Rise of Finance Companies and FinTech Lenders in Small Business Lending," The Review of Financial Studies, Society for Financial Studies, vol. 35(11), pages 4859-4901.
    25. Berger, Allen N. & Molyneux, Philip & Wilson, John O.S. (ed.), 2014. "The Oxford Handbook of Banking, Second Edition," OUP Catalogue, Oxford University Press, number 9780199688500.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marsh, W. Blake & Sharma, Padma, 2024. "Loan guarantees in a crisis: An antidote to a credit crunch?," Journal of Financial Stability, Elsevier, vol. 72(C).
    2. Carletti, Elena & Leonello, Agnese & Marquez, Robert, 2023. "Loan guarantees, bank underwriting policies and financial stability," Journal of Financial Economics, Elsevier, vol. 149(2), pages 260-295.
    3. Carletti, Elena & Leonello, Agnese & Marquez, Robert, 2023. "Loan guarantees, bank underwriting policies and financial fragility," Working Paper Series 2782, European Central Bank.
    4. Beck, Thorsten & Keil, Jan, 2022. "Have banks caught corona? Effects of COVID on lending in the U.S," Journal of Corporate Finance, Elsevier, vol. 72(C).
    5. Berger, Allen N. & Boot, Arnoud W.A., 2024. "Financial intermediation services and competition analyses: Review and paths forward for improvement," Journal of Financial Intermediation, Elsevier, vol. 57(C).
    6. Hasan, Iftekhar & Li, Xiang & Takalo, Tuomas, 2023. "Technological innovation and the bank lending channel of monetary policy transmission," IWH Discussion Papers 14/2021, Halle Institute for Economic Research (IWH), revised 2023.
    7. Lei Li & Philip Strahan, 2020. "Who Supplies PPP Loans (And Does it Matter)? Banks, Relationships and the COVID Crisis," NBER Working Papers 28286, National Bureau of Economic Research, Inc.
    8. Keil, Jan & Ongena, Steven, 2024. "The demise of branch banking – Technology, consolidation, bank fragility," Journal of Banking & Finance, Elsevier, vol. 158(C).
    9. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    10. Kristian S. Blickle & João A. C. Santos, 2022. "Unintended Consequences of "Mandatory" Flood Insurance," Staff Reports 1012, Federal Reserve Bank of New York.
    11. James, Christopher & Lu, Jing & Sun, Yangfan, 2021. "Time is money: Real effects of relationship lending in a crisis," Journal of Banking & Finance, Elsevier, vol. 133(C).
    12. Pierri, Nicola & Timmer, Yannick, 2022. "The importance of technology in banking during a crisis," Journal of Monetary Economics, Elsevier, vol. 128(C), pages 88-104.
    13. Anbil, Sriya & Carlson, Mark & Styczynski, Mary-Frances, 2023. "The effect of the Federal Reserve’s lending facility on PPP lending by commercial banks," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    14. Li, Xiang, 2022. "The role of state-owned banks in crises: Evidence from German banks during COVID-19," IWH Discussion Papers 6/2022, Halle Institute for Economic Research (IWH), revised 2022.
    15. Huang, Yiping & Li, Xiang & Qiu, Han & Yu, Changhua, 2023. "BigTech credit and monetary policy transmission: Micro-level evidence from China," BOFIT Discussion Papers 2/2023, Bank of Finland Institute for Emerging Economies (BOFIT).
    16. Babina, Tania & Bahaj, Saleem & Buchak, Greg & De Marco, Filippo & Foulis, Angus & Gornall, Will & Mazzola, Francesco & Yu, Tong, 2024. "Customer data access and fintech entry: early evidence from open banking," Bank of England working papers 1059, Bank of England.
    17. Basten, Christoph & Ongena, Steven, 2024. "Mortgage lending through a fintech web platform. The roles of competition, diversification, and automation," Journal of Banking & Finance, Elsevier, vol. 163(C).
    18. Chernenko, Sergey & Scharfstein, David, 2024. "Racial disparities in the Paycheck Protection Program," Journal of Financial Economics, Elsevier, vol. 160(C).
    19. Jose J. Canals-Cerda & Brian Jonghwan Lee, 2025. "Who Provides Credit in Times of Crisis? Evidence from the Auto Loan Market," Working Papers 25-06, Federal Reserve Bank of Philadelphia.
    20. Asaftei, Gabriel, 2008. "The contribution of product mix versus efficiency and technical change in US banking," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2336-2345, November.

    More about this item

    Keywords

    Banking; Fintech; Technology; Paycheck Protection Program; COVID-19; Commercial & industrial lending; Small business lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinin:v:59:y:2024:i:c:s1042957324000299. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622875 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.