Working Paper: NBER ID: w27659
Authors: Isil Erel; Jack Liebersohn
Abstract: New technology promises to expand the supply of financial services to small businesses poorly served by the banking system. Does it succeed? We study the response of FinTech to financial services demand created by the introduction of the Paycheck Protection Program (PPP). We find that FinTech is disproportionately used in ZIP codes with fewer bank branches, lower incomes, and a larger minority share of the population, as well as in industries with little ex ante small-business lending. FinTech’s role in PPP provision is also greater in counties where the economic effects of the COVID-19 pandemic were more severe. We estimate that more PPP provision by traditional banks causes statistically significant but economically small substitution away from FinTechs, implying that FinTech mostly expands the overall supply of financial services, rather than redistributing it.
Keywords: Fintech; Paycheck Protection Program; Small Business Lending; COVID-19
JEL Codes: G00; G01; G2; G21; G23; G28; H12; H2; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fintech lenders (G21) | access to financial services (G20) |
| fintech lenders (G21) | PPP loans in areas with greater economic shocks (H81) |
| higher unemployment rates and COVID-19 case counts (J64) | fintech loans (G21) |
| fewer bank branches (G21) | likelihood of receiving loans from fintechs (G21) |
| traditional banks (G21) | fintech lenders (substitution) (G21) |