BIS Report: The Response of Fintech to Monetary Policy - A New Credit Landscape

In today's rapidly changing financial world, Fintech and traditional bank lending are engaged in fierce competition. An innovative study by the Bank for International Settlements (BIS) reveals the differing responses of the two to changes in monetary policy, which is crucial for understanding the modern economy. View the original report by BIS

The Rise and Impact of Digital Lending

Financial technology lending, including P2P loans and market loans from large tech companies, is growing rapidly on a global scale. This form of lending is less sensitive to monetary policy, especially compared to traditional bank loans. This finding is crucial for understanding the impact on economic policies.

Differences Between Fintech and Bank Loans

Financial technology platforms use big data for credit assessment, which differs from traditional banks in terms of operations and regulatory frameworks. These differences lead to varying responses to monetary policy, especially in terms of loan conditions and supply adjustments. The business models of large tech lenders, focusing on monitoring and screening capabilities, are sensitive to changes in corporate transaction volume and online ratings.

The Impact of Monetary Policy on the Lending Market

A study using data from 19 countries between 2005 and 2020, analyzed through PVAR, explores the effects of changes in monetary policy on fintech lending and bank loans. The results show that fintech lending has a weaker response to monetary policy, contrasting sharply with bank loans.

Implications of BIS Research on the Macroeconomy

Although fintech lending still accounts for a small share in the global economy, its explanatory power for real GDP changes is less than 2%, whereas bank loans contribute about a quarter. This highlights the significant role traditional bank loans still play in the macroeconomy under current economic conditions.

This research provides a clear picture of the differences in how fintech and traditional bank loans respond to changes in monetary policy. Understanding these differences is crucial for formulating effective economic policies as fintech's position in the global lending market continues to strengthen.

What Constitutes Fintech Credit?

• P2P Lending: Platforms like LendingClub or Prosper directly connect borrowers with individual lenders, bypassing traditional banking systems. Borrowers can obtain loans for various purposes such as debt consolidation, home improvements, or small business funding.
• Online Personal and Business Loans: Companies like SoFi and Kabbage offer personal and business loans respectively. They use digital platforms to streamline the application process, often providing quicker approval and funding than traditional banks.
• Microfinance and Microloans: Fintech companies like Kiva provide small loans to entrepreneurs in developing countries where traditional banking services are limited. These loans are crucial for establishing or expanding small businesses.
• Accounts Receivable Financing: Platforms like Fundbox offer businesses an option to borrow based on customer invoices, helping them improve cash flow while waiting for invoice payments.
• Buy Now, Pay Later (BNPL) Services: Fintech companies like Afterpay and Klarna allow consumers to purchase goods and services and pay for them in installments later, usually interest-free. This is becoming increasingly popular in online retail.
• Mobile Loan Apps: Apps like MoneyLion and Dave provide small, short-term loans designed to help users manage expenses until their next paycheck.
• Crowdfunding: Platforms like GoFundMe or Kickstarter, while not offering loans, provide individuals and businesses a way to raise funds from a large crowd, typically through the internet.