Fintech Disruption, Banks, and Credit (Dis-)Intermediation: When Do Foes Become Friends?

60 Pages Posted: 6 Jan 2022 Last revised: 4 Mar 2022

See all articles by Yasser Boualam

Yasser Boualam

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Paul Yoo

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: January 5, 2022

Abstract

We build a financial intermediation model wherein bank and fintech intermediaries differ in their enforcement technology, reliance on collateral, and funding cost and compete or partner within frictional credit markets. The model explains the emergence and coexistence of three forms of lending associated with: (i) standalone banks, (ii) standalone fintechs, and (iii) bank-fintech partnerships. Fintech disruption enhances market competition and facilitates credit intermediation to previously underserved borrowers, but crowds out bank-captive borrowers as banks experience low profitability and get displaced. In equilibrium, fintech entry and the prevalence of partnerships do not necessarily benefit all borrowers, leading to ambiguous aggregate credit and welfare effects.

Keywords: Credit Intermediation, Financial Technology, Limited Commitment, Search and Matching

JEL Classification: D83, G21, G28, J20

Suggested Citation

Boualam, Yasser and Yoo, Paul, Fintech Disruption, Banks, and Credit (Dis-)Intermediation: When Do Foes Become Friends? (January 5, 2022). Available at SSRN: https://ssrn.com/abstract=4001998 or http://dx.doi.org/10.2139/ssrn.4001998

Yasser Boualam (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://www.yasserboualam.com

Paul Yoo

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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