Fintech, Credit Market Competition, and Bank Asset Quality

This study explores bank screening incentives under credit market competition between traditional banks and a Fintech startup. The bank screening incentives increase with the cost of the Fintech startup’s screening technology, decrease with the performance of that technology, and increase with the cost of entrepreneurs’ conveying information to the Fintech startup. However, when the preparation cost of entrepreneurs applying to the banks for loans falls with Fintech, the bank screening incentives are eroded; while when the bank screening cost decreases with Fintech, those incentives are enhanced. We also discuss the role of capital regulation and several extensions for robustness.