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The real effects of FinTech lending on SMEs: evidence from loan applications

Author

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  • Ferreira, Miguel A.
  • Eça, Afonso
  • Prado, Melissa Porras
  • Rizzo, A. Emanuele

Abstract

We show that FinTech lending affects credit markets and real economic activity using a unique data set of a Peer-to-Business platform for which we have the universe of loan applications. We find that FinTech serves high quality and creditworthy small businesses who already have access to bank credit. Firms use FinTech to obtain long-term unsecured loans and reduce their exposure to banks with less liquid assets, stable funds, and capital. We find that access to FinTech spurs firm growth, employment and investment relative to firms that get their loan application rejected. In addition, firms with access to FinTech increase leverage and substitute long-term bank debt with FinTech debt. Our findings suggest that FinTech allows firms to preserve financial flexibility, reduce their bank dependence and exposure to banking shocks. JEL Classification: G21, G23, O33

Suggested Citation

  • Ferreira, Miguel A. & Eça, Afonso & Prado, Melissa Porras & Rizzo, A. Emanuele, 2022. "The real effects of FinTech lending on SMEs: evidence from loan applications," Working Paper Series 2639, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222639
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    References listed on IDEAS

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    Cited by:

    1. Yan, Kai & Zhang, Ziyi & Yang, Lisi & Cao, Yuqiang & Shan, Yaowen, 2024. "Capital generates green: Evidence from China's national innovation system policy," International Review of Financial Analysis, Elsevier, vol. 91(C).
    2. Piotr Å asak, 2022. "The role of financial technology and entrepreneurial finance practices in funding small and medium-sized enterprises," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 18(1), pages 7-34.
    3. Nam, Rachel J., 2022. "Open banking and customer data sharing: Implications for FinTech borrowers," SAFE Working Paper Series 364, Leibniz Institute for Financial Research SAFE.
    4. Deng, Jiapin & Liu, Yanchu, 2022. "Does digital finance reduce the employment in the finance industry? Evidence from China," Finance Research Letters, Elsevier, vol. 48(C).
    5. Francesca Bartolacci & Andrea Cardoni & Piotr Å asak & Wojciech Sadkowski, 2022. "An analytical framework for strategic alliance formation between a cooperative bank and a fintech start-up: An Italian case study," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 18(4), pages 115-156.
    6. Cuadros-Solas, Pedro J. & Cubillas, Elena & Salvador, Carlos & Suárez, Nuria, 2024. "Digital disruptors at the gate. Does FinTech lending affect bank market power and stability?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).

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    More about this item

    Keywords

    bank relationships; debt structure; FinTech; firm growth; 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
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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