Essays on FinTech Lending

The three essays in the thesis provide some novel explanations and perspectives regarding the structure of FinTech lending: including the impact of legal enforcement on the FinTech framework, the role of verification in FinTech credit and the effect of crowdsourced reviews on the FinTech lending industry. In “Legal Enforcement and FinTech Innovations: International Evidence”, using 5,540,449 FinTech loan-level observations across 24 countries, we first find loan interest rates are significantly lower when borrowers’ jurisdictions exhibit stronger legal enforcement. Importantly, we find that the call for legal protection on FinTech credit is less pressing when loans are issued by platforms with better risk-sharing innovations, and when borrowers’ jurisdictions have high information-sharing intensity. To establish causality, we apply the difference-in-differences method by using the country-level staggered adoption of good practices that promote court quality and efficiency, as exogenous shocks to enforceability. Our study contributes to the debate on the role of legal protection in FinTech credit market by interacting with FinTech innovations. In “Crowdsourced reviews and FinTech Lending Industry”, this chapter examines the extent to which crowdsourced reviews predict FinTech platform performance and survival probability. We conduct textual analysis of 152,676 reviews published on one of the most popular FinTech information providers between 2015 and 2019. We find that negative sentiment predicts lower trading volume, fewer investors, and fewer loans in a FinTech platform. This result is robust to a series of sensitivity tests and is more prominent that we apply the difference-in-differences approach to establish causality. Moreover, we observe that informative negative reviews are related to worse platform performance while informative positive reviews do not seem to matter. Further analysis uncovers that FinTech platforms experiencing increases in negative reviews are significantly less likely to survive. Our study suggests that crowdsourced review is an important component that could be considered in regulating the FinTech marketplace. In “The Role of Verification in FinTech Lending”, using data from a leading Chinese FinTech lending platform from 2012 to 2015, we investigate the role of verification in the FinTech lending market. We find that borrowers with thorough and complete verification are more likely to obtain funding and also less likely to default on loans. We also find that borrowers that have incomplete verification are more likely to upwardly misrepresent their income. This leads to higher default rates for this group when compared to the default rates of more thoroughly verified borrowers. The further analysis documents that returning borrowers are more likely to maintain a good credit record. We discuss the implications of our findings for the role of verification in the growing FinTech lending sector and the design of a stable financial system