October 2021
Article
Review of Financial Studies

Fintech Borrowers: Lax Screening or Cream-Skimming?

Format:Print

Abstract

Personal credit is the fastest-growing segment of the consumer credit market, mainly driven by fintech lenders' staggering expansion. We study this market using a unique individual-level data, which covers most of the top fintech and traditional lenders, and provides detailed information about borrowers' credit histories. We show that fintech borrowers are significantly more likely to default than neighbor individuals with the same characteristics borrowing from traditional financial institutions. Fintech borrowers are more likely to experience only a short-lived reduction in the cost of credit, because their total indebtedness increases more than non-fintech borrowers a few months after loan origination. However, we show that fintech lenders' pricing strategy is likely to take this into account.

Keywords

Fintech; Lending; Consumer Finance; Credit History; Self-control; Present Bias; Financing and Loans; Personal Finance; Credit; Behavior

Citation

Di Maggio, Marco, and Vincent Yao. "Fintech Borrowers: Lax Screening or Cream-Skimming?" Review of Financial Studies 34, no. 10 (October 2021): 4565–4618. (LEAD ARTICLE and EDITOR'S CHOICE.)