Types of consumer credit and bank distribution channels: insights from Italy

This paper contributes to filling two gaps in the literature on consumer credit. First, while this literature tends to overlook the specific types of credit we split the consumer credit into different components and compare their developments, focusing especially on two loan types – salary-backed loans (Cessioni del Quinto dello Stipendio, CQS) and revolving loans – which are considered particularly relevant in the debate on household over-indebtedness and bank customer protection. Second, while the literature has extensively analysed bank branches as the traditional bank loan distribution channel, and more recently has started to analyse digital channels, we extend the analysis to all alternative loan distribution channels (i.e. all channels other than bank branches): financial promoters, merchants (i.e. direct cash advances in shops), and all remote channels (e.g. internet, telephone and apps). Our results show that banks that are more active in consumer lending are often part of banking groups, and rely more heavily on wholesale and intragroup sources, especially for CQS and revolving loans. Banks with a larger base of retail customers are less reliant on external distribution channels. Larger banks have easier access to external and remote channels, and when they lend through merchants they use them even more. Banks that are more involved in consumer credit have significantly lower levels of bad loans, except for CQS and revolving loans, while banks that use alternative channels, except for merchants, often have lower asset quality levels. Banks that use alternative channels have higher operating costs, with the exception of those using remote channels. All in all, our results can be read as confirmation of the attention that banks using certain forms of credit and alternative distribution channels deserve from supervisors.