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Author: Mark Joseph Johnson (Ph. D. in finance) Publisher: ISBN: Category : Loans Languages : en Pages : 0
Book Description
This dissertation contains three chapters that aim to improve our understanding of the pricing and supply of fintech credit made to small businesses and consumers. In the first chapter, I examine the contribution fintech makes in small business. Fintech promises improvements in access to credit through more efficient search and better pricing. Using novel data from a marketplace platform of 115,000 loan offers from 46 online lenders I show that the primary contribution of fintech is not in precisely measuring and pricing risk, but rather in facilitating search between small firms and preferred-habitat lenders. Loan offers are largely unexplained by firm characteristics and differ substantially even for the same applicant. The dispersion in offers is largely explained by the fact that lenders have preferred habitats—lending to borrowers of certain risk types and charging relatively uniform rates to all applicants. Borrowers match through the platform with lenders that offer the best rates, which leads to an equilibrium where prices appear to be closely tied to the characteristics of the firm. The findings highlight the importance of marketplace platforms that reduce search frictions for firms. In the second chapter, co-authored with Jason Lee and under the supervision of Itzhak Ben-David and Rene Stulz, we study the unsecured personal loan market and ask whether fintech lenders benefit from a lack of bank competition. We make use of banks’ decisions to restrict the supply of unsecured personal loans to prime borrowers (indicated by FICO scores above 660) as an instrument for reduced competition. Using novel data containing loan performance for millions of fintech borrowers, we find that fintech borrowers who fall just below prime (“near-prime” borrowers) face annual interest rates that are 10.1 percentage points (or 66%) higher than prime borrowers without an associated large jump in default rates. This results in high returns to the lenders—loans made to near-prime borrowers earn annual returns that are 6.9 percentage points higher than seemingly identical borrowers who differ only in potential access to bank credit. In the last chapter, co-authored with Professors Itzhak Ben-David and Rene Stulz, we ask why fintech credit to small businesses became so scarce at the beginning of the COVID-19 pandemic. Using daily data from a major small business fintech credit platform that enables us to identify separately the demand and the supply for credit, we document that the number of loan applications increased sharply early in the COVID-19 crisis, but the supply of credit collapsed as lenders dropped from the platform. Compared to March 2019, the probability that an applicant with identical characteristics received an offer is much lower during the last three weeks of March 2020. We show that the evolution of the supply is consistent with the default risk of potential borrowers becoming too high for loans to be profitable and with the disappearance of fintech lenders' funding.
Author: Mark Joseph Johnson (Ph. D. in finance) Publisher: ISBN: Category : Loans Languages : en Pages : 0
Book Description
This dissertation contains three chapters that aim to improve our understanding of the pricing and supply of fintech credit made to small businesses and consumers. In the first chapter, I examine the contribution fintech makes in small business. Fintech promises improvements in access to credit through more efficient search and better pricing. Using novel data from a marketplace platform of 115,000 loan offers from 46 online lenders I show that the primary contribution of fintech is not in precisely measuring and pricing risk, but rather in facilitating search between small firms and preferred-habitat lenders. Loan offers are largely unexplained by firm characteristics and differ substantially even for the same applicant. The dispersion in offers is largely explained by the fact that lenders have preferred habitats—lending to borrowers of certain risk types and charging relatively uniform rates to all applicants. Borrowers match through the platform with lenders that offer the best rates, which leads to an equilibrium where prices appear to be closely tied to the characteristics of the firm. The findings highlight the importance of marketplace platforms that reduce search frictions for firms. In the second chapter, co-authored with Jason Lee and under the supervision of Itzhak Ben-David and Rene Stulz, we study the unsecured personal loan market and ask whether fintech lenders benefit from a lack of bank competition. We make use of banks’ decisions to restrict the supply of unsecured personal loans to prime borrowers (indicated by FICO scores above 660) as an instrument for reduced competition. Using novel data containing loan performance for millions of fintech borrowers, we find that fintech borrowers who fall just below prime (“near-prime” borrowers) face annual interest rates that are 10.1 percentage points (or 66%) higher than prime borrowers without an associated large jump in default rates. This results in high returns to the lenders—loans made to near-prime borrowers earn annual returns that are 6.9 percentage points higher than seemingly identical borrowers who differ only in potential access to bank credit. In the last chapter, co-authored with Professors Itzhak Ben-David and Rene Stulz, we ask why fintech credit to small businesses became so scarce at the beginning of the COVID-19 pandemic. Using daily data from a major small business fintech credit platform that enables us to identify separately the demand and the supply for credit, we document that the number of loan applications increased sharply early in the COVID-19 crisis, but the supply of credit collapsed as lenders dropped from the platform. Compared to March 2019, the probability that an applicant with identical characteristics received an offer is much lower during the last three weeks of March 2020. We show that the evolution of the supply is consistent with the default risk of potential borrowers becoming too high for loans to be profitable and with the disappearance of fintech lenders' funding.
Author: Karen G. Mills Publisher: Springer Nature ISBN: 3031556127 Category : Banks and banking Languages : en Pages : 285
Book Description
Small businesses are the backbone of the U.S. economy. They are the biggest job creators and offer a path to the American Dream. But for many, it is difficult to get the capital they need to operate and succeed. In Fintech, Small Business & the American Dream, former U.S. Small Business Administrator and Senior Fellow at Harvard Business School, Karen G. Mills, focuses on the needs of small businesses for capital and how technology will transform the small business lending market. This is a market that has been plagued by frictions: it is hard for a lender to figure out which small businesses are creditworthy, and borrowers often don't know how much money or what kind of loan they need. Every small business is different; one day the borrower is a dry cleaner and the next a parts supplier, making it difficult for lenders to understand each business's unique circumstances. Today, however, big data and artificial intelligence have the power to illuminate the opaque nature of a small business's finances and make it easier for them access capital to weather bumpy cash flows or to invest in growth opportunities. Beginning in the dark days following the 2008-9 recession and continuing through the crisis of the Covid-19 Pandemic, Mills charts how fintech has changed and will continue to change small business lending. In the new fintech landscape financial products are embedded in applications that small business owners use on daily basis, and data powered algorithms provide automated insights to determine which businesses are creditworthy. Digital challenger banks, big tech and traditional banks and credit card companies are deciding how they want to engage in the new lending ecosystem. Who will be the winners and losers? How should regulators respond? In this pivotal moment, Mills elucidates how financial innovation and wise regulation can restore a path to the American Dream by improving access to small business credit. An ambitious book grappling with the broad significance of small business to the economy, the historical role of credit markets, the dynamics of innovation cycles, and the policy implications for regulation, this second edition of Fintech, Small Business & the American Dream is relevant to bankers, regulators and fintech entrepreneurs and investors; in fact, to anyone who is interested in the future of small business in America.
Author: Karen G. Mills Publisher: Palgrave Macmillan ISBN: 9783030036195 Category : Business & Economics Languages : en Pages : 0
Book Description
Small businesses are the backbone of the U.S. economy. They are the biggest job creators and offer a path to the American Dream. But for many, it is difficult to get the capital they need to operate and succeed. In the Great Recession, access to capital for small businesses froze, and in the aftermath, many community banks shuttered their doors and other lenders that had weathered the storm turned to more profitable avenues. For years after the financial crisis, the outlook for many small businesses was bleak. But then a new dawn of financial technology, or “fintech,” emerged. Beginning in 2010, new fintech entrepreneurs recognized the gaps in the small business lending market and revolutionized the customer experience for small business owners. Instead of Xeroxing a pile of paperwork and waiting weeks for an answer, small businesses filled out applications online and heard back within hours, sometimes even minutes. Banks scrambled to catch up. Technology companies like Amazon, PayPal, and Square entered the market, and new possibilities for even more transformative products and services began to appear. In Fintech, Small Business & the American Dream, former U.S. Small Business Administrator and Senior Fellow at Harvard Business School, Karen G. Mills, focuses on the needs of small businesses for capital and how technology will transform the small business lending market. This is a market that has been plagued by frictions: it is hard for a lender to figure out which small businesses are creditworthy, and borrowers often don’t know how much money or what kind of loan they need. New streams of data have the power to illuminate the opaque nature of a small business’s finances, making it easier for them to weather bumpy cash flows and providing more transparency to potential lenders. Mills charts how fintech has changed and will continue to change small business lending, and how financial innovation and wise regulation can restore a path to the American Dream. An ambitious book grappling with the broad significance of small business to the economy, the historical role of credit markets, the dynamics of innovation cycles, and the policy implications for regulation, Fintech, Small Business & the American Dream is relevant to bankers, fintech investors, and regulators; in fact, to anyone who is interested in the future of small business in America.
Author: Tetyana Balyuk Publisher: ISBN: Category : Languages : en Pages :
Book Description
This Thesis studies whether financial technology (fintech) innovation and loans provided by corporate insiders can mitigate financing frictions and correct market failures in markets with asymmetric information and adverse selection. It consists of five chapters. Chapter 1 outlines the research questions examined in the Thesis and highlights its main findings. Chapter 2 studies the effect of borrowing from peer-to-peer (P2P) lending platforms, a recent fintech innovation in lending, on the supply of credit by traditional credit intermediaries, such as banks, and the demand for credit from banks by consumers. It provides evidence suggesting that this innovation in lending affects the information environment in the credit market and increases access to credit by consumers. Chapter 3 examines loan selection by investors and loan returns in P2P markets. It demonstrates the dominating role of institutional investors in P2P lending, contrasts the loan-picking skill of institutional and retail investors, and discusses the ability of fintech lenders to accurately price and screen loan applications. Chapter 4 studies whether information-intensive debt can benefit corporations by investigating loans provided by corporate insiders, so-called related-party lending, from the perspective of corporate borrowers. It documents characteristics of these loans and shows that they are taken when the information asymmetry between borrowers and external capital providers is likely high. The findings also suggest that other debt providers regard relating-party lending as a signal of credit quality of borrowers. Chapter 5 concludes and discusses avenues for future research.
Author: Afonso Eça Publisher: ISBN: Category : Banks and banking Languages : en Pages : 38
Book Description
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 and loans granted. We find that FinTech serves the same segment of high quality and creditworthy small businesses as banks. Firms use FinTech loans to reduce bank dependence, especially from less liquid banks. We find that firms that access FinTech lending increase assets, employment, and sales relative to firms that get their loan application rejected. In addition, we find that firms increase leverage as they substitute long-term bank debt with long-term FinTech debt and short-term bank debt. Our findings suggest that FinTech lending reduces financing constraints and spurs investment and firm growth.
Author: Lamont K. Black Publisher: ISBN: 9780549024699 Category : Languages : en Pages : 151
Book Description
The focus of the dissertation is on information issues in small business lending. The first essay is a theoretical essay about how bank competition works when one bank has private information about a firm. If a bank learns private information about a firm through the process of lending, information asymmetries can arise in the bidding for a loan. This essay analyzes the predicted interest rates under this structure of competition. The model predicts that observed interest rates may be higher or lower at the lender with private information depending on the characteristics of the borrower pool. The second essay is an empirical essay that tests these theoretical predictions. The findings show that firms pay a higher interest rate when they switch to a new lender from an existing lender, which is consistent with the high quality of borrowers in my data. Additionally, the difference between the new lender and existing lender rate is greater for firms with greater information asymmetries, which is also consistent with the theory. The third essay (co-authored with Richard J. Rosen) focuses on the macroeconomic effect of information asymmetries through the credit channel. The credit channel includes the bank lending channel and balance sheet channel, but these have proven difficult to identify. The approach in this essay is to use borrowing under commitment as a baseline for loan demand, such that changes in spot lending (borrowing without a commitment) relative to commitment lending can be identified as changes in loan supply. The results indicate that, during periods of tight monetary policy, banks (a) reduce the maturity of their loans, which is consistent with the bank lending channel, and (b) shift short-term loan supply from small firms to large firms, which is consistent with the balance sheet channel. Together these findings help to identify how the credit channel works.
Author: Ms.Ratna Sahay Publisher: International Monetary Fund ISBN: 1513512242 Category : Business & Economics Languages : en Pages : 83
Book Description
Technology is changing the landscape of the financial sector, increasing access to financial services in profound ways. These changes have been in motion for several years, affecting nearly all countries in the world. During the COVID-19 pandemic, technology has created new opportunities for digital financial services to accelerate and enhance financial inclusion, amid social distancing and containment measures. At the same time, the risks emerging prior to COVID-19, as digital financial services developed, are becoming even more relevant.
Author: Mark Joseph Johnson (Ph. D. in finance)
Author: Mark Joseph Johnson (Ph. D. in finance)
Author: Karen G. Mills
Author: Brett Barkley
Author: Giulio Cornelli
Author: Karen G. Mills
Author: Jorma Juhani Schäublin
Author: Tetyana Balyuk
Author: Afonso Eça
Author: Lamont K. Black
Author: Ms.Ratna Sahay