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Fintech and big tech credit: a new database

Summary:
BIS Working Papers  |  No 887  |  22 September 2020 by  Giulio Cornelli, Jon Frost, Leonardo Gambacorta, Raghavendra Rau, Robert Wardrop and Tania Ziegler PDF full text (2,257kb)  |  35 pages Summary Focus Credit markets around the world are undergoing a deep transformation. While banks, credit unions and other traditional lenders remain the chief source of finance in most economies, with capital markets playing an important role in some cases, new intermediaries have recently emerged. In particular, digital lending models such

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BIS Working Papers  |  No 887  | 
22 September 2020
PDF full text
 (2,257kb)
 |  35 pages

Summary

Focus

Credit markets around the world are undergoing a deep transformation. While banks, credit unions and other traditional lenders remain the chief source of finance in most economies, with capital markets playing an important role in some cases, new intermediaries have recently emerged. In particular, digital lending models such as peer-to-peer and marketplace lending have grown in many economies in the past decade. These types of credit, facilitated by online platforms rather than traditional banks or lending companies, are referred to as "fintech credit". Moreover, in the past few years, many large companies whose primarily business is technology (big techs) have entered credit markets, providing "big tech credit" either directly or in partnership with financial institutions.

Contribution

Information on the size and characteristics of fintech and big tech credit is scarce. In this paper, we assemble and update available data on fintech and big tech credit volumes for 79 countries around the world over 2013-19. The database is made available as a resource for researchers, policymakers and practitioners. We answer the questions: how large are fintech and big tech credit markets, both in absolute terms and relative to overall credit markets? What economic and institutional factors are driving their growth and adoption? How large and important could they become in the future?

Findings

We find that in 2019, fintech and big tech credit (together "total alternative credit") reached nearly USD 800 billion globally. Big tech credit has shown particularly rapid growth in Asia (China, Japan, Korea and Southeast Asia), and some countries in Africa and Latin America. By contrast, fintech credit volumes declined in 2018-19 due to market and regulatory developments in China. Outside China, fintech credit is still growing. We find that these alternative forms of credit are more developed in countries with higher GDP per capita (at a declining rate), where banking sector mark-ups are higher and where banking regulation is less stringent. Fintech credit is also more developed where there are fewer bank branches per capita. We find that these alternative forms of credit are more developed where the ease of doing business is greater, investor protection disclosure and the efficiency of the judicial system are more advanced, the bank credit-to-deposit ratio is lower, and where bond and equity markets are more developed. Overall, both fintech and big tech credit seems to complement other forms of credit, rather than substitute for them,­ and may increase overall access to credit.


Abstract

Fintech and big tech platforms have expanded their lending around the world. We estimate that the flow of these new forms of credit reached USD 223 billion and USD 572 billion in 2019, respectively. China, the United States and the United Kingdom are the largest markets for fintech credit. Big tech credit is growing fast in China, Japan, Korea, Southeast Asia and some countries in Africa and Latin America. Cross-country panel regressions show that such lending is more developed in countries with higher GDP per capita (at a declining rate), where banking sector mark-ups are higher and where banking regulation is less stringent. Fintech credit is larger where there are fewer bank branches per capita. We also find that fintech and big tech credit are more developed where the ease of doing business is greater, and investor protection disclosure and the efficiency of the judicial system are more advanced, the bank creditto- deposit ratio is lower and where bond and equity markets are more developed. Overall, alternative credit seems to complement other forms of credit, rather than substitute for them.

JEL codes: E51, G23, O31

Keywords: fintech, big tech, credit, data, technology, digital innovation

Dataset (xlsx)

International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

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