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  • 2021
  • Working Paper

FinTech Lending and Cashless Payments

By: Pulak Ghosh, Boris Vallée and Yao Zeng
  • Format:Print
  • | Language:English
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Abstract

This study provides a new perspective to understand the rise and future potential of FinTech lending by linking it to the informational role of cashless payments. We uncover both theoretically and empirically a synergy between FinTech lending and cashless payments. FinTech lenders screen borrowers more efficiently when borrowers use more cashless payments that produce transferrable and verifiable information. Because borrowers expect lenders to rely on such payment information to screen them, a strategic consideration for a borrower to stand out of other borrowers then pushes more borrowers to adopt cashless payments. Using novel loan-level data from a large Indian FinTech lender who focuses on small-business lending, we find that a larger use of verifiable cashless payments (relative to cash) predicts a higher chance of loan approval, a lower interest rate, and lower default conditional on the interest rate obtained. These relationships are more pronounced for higher-quality firms. The uncovered synergy provides a plausible explanation for the joint rise of FinTech lending and cashless payments, and suggests an alternative banking model without a balance sheet or traditional banking relationships. Our findings also provide new policy implications on data sharing and open banking.

Keywords

Fintech; Lending; Payments; Data Sharing; Financing and Loans; Information Technology; Banks and Banking; Business Model

Citation

Ghosh, Pulak, Boris Vallée, and Yao Zeng. "FinTech Lending and Cashless Payments." Working Paper, February 2021. (Revise and Resubmit at the Journal of Finance.)
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About The Author

Boris Vallee

Finance
→More Publications

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  • Masdar City: Aiming for Sustainable and Profitable Real Estate By: Boris Vallee and Fares Khrais
  • Can Finance Save the World? Measurement and Effects of Coal Divestment Policies by Banks By: Daniel Green and Boris Vallée
  • A Case in Point: Shared Home Equity By: Daniel Green, Boris Vallee and Sean Bracken
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