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Is \"Fintech\" Good for Small Business Borrowers? Impacts on Firm Growth and Customer Satisfaction

Author

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  • Brett Barkely
  • Mark E. Schweitzer

Abstract

?Fintech? is a rapidly expanding segment of the financial market that is receiving much attention from investors and increasing regulatory scrutiny. While the attention is rising, very little is known about the performance of these lending sources on the outcomes of small businesses that make use of them. The Federal Reserve?s 2015 Small Business Credit Survey has data on the experiences of business owners with this new funding source and can provide some useful insights into this expanding sector, if compositional differences among the businesses that get bank loans, those that get fintech loans, and those that are denied credit are accounted for. We apply an inverse-probability-weighted regression adjustment and inverse-probability weighting from the treatment effects literature to adjust for compositional difference. We find: (1) online borrowers have characteristics that make them very much like the businesses who were denied credit, (2) the results for online lenders are hard to distinguish from either receiving no financing or receiving a bank loan, and (3) bank borrowers are more satisfied than online borrowers who are more satisfied than businesses who were denied credit. These results should inform the policy discussion on fintech and point to the need for clearer results on the effectiveness of online lenders to small businesses.

Suggested Citation

  • Brett Barkely & Mark E. Schweitzer, 2017. "Is \"Fintech\" Good for Small Business Borrowers? Impacts on Firm Growth and Customer Satisfaction," Working Papers (Old Series) 1701, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1701
    DOI: 10.26509/frbc-wp-201701
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    Citations

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    Cited by:

    1. Chen, Haiqiang & Lin, Zhe, 2024. "Local fiscal pressure and shadow banking activities of nonfinancial enterprises–A story of government intervention," Finance Research Letters, Elsevier, vol. 62(PB).
    2. Franklin Allen & Xian Gu & Julapa Jagtiani, 2021. "A Survey of Fintech Research and Policy Discussion," Review of Corporate Finance, now publishers, vol. 1(3-4), pages 259-339, July.
    3. Bollaert, Helen & Lopez-de-Silanes, Florencio & Schwienbacher, Armin, 2021. "Fintech and access to finance," Journal of Corporate Finance, Elsevier, vol. 68(C).
    4. Chaudhry, Sajid M. & Ahmed, Rizwan & Huynh, Toan Luu Duc & Benjasak, Chonlakan, 2022. "Tail risk and systemic risk of finance and technology (FinTech) firms," Technological Forecasting and Social Change, Elsevier, vol. 174(C).

    More about this item

    Keywords

    Small business lending; online alternative lenders; fintech; firm growth;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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