FinTech Lending in Consumer Credit Market during Risky Times: Evidence from the Marketplace Lending Platforms

This dissertation uses evidence from Marketplace Lending (MPL) platforms to examine how newly emerged Fintech lending performs during risky times. In the first chapter, I use the COVID-19 pandemic as a setting to examine the role of marketplace lending (MPL) as an alternative credit provider during a long-term and market-wide economic crisis. Using data from LendingClub, I find that marketplace lenders extend more credit to counties with larger COVID-19 exposure, as measured by its local economic impact and an area’s infection rate. This relation is more prominent in areas with fewer banks, suggesting that marketplace lenders fill borrowing needs in underbanked areas and substitute the traditional lending sector. However, in contrast to prior work showing that marketplace lenders increase credit availability to riskier borrowers, I find that the increase in loans goes primarily to higher credit-quality borrowers during the pandemic. This result is consistent with a “flight-to-quality” reaction. Yet, there is some evidence of altruistic lending behaviors, as medical-related loans increase in areas more affected by the pandemic.

In the second chapter, I use mass shootings as a setting to examine how short-term salient events affect FinTech lending in consumer credit markets. Unlike other risky events that only increase fundamental risks, mass shootings also change how MPL investors perceive risks in affected areas and generate altruism towards lower credit borrowers who may be disproportionally affected by the events. I find that loans originated by higher-credit borrowers in areas that have experienced at least one mass shooting in the past three months receive lower inflows of credit and are charged higher interest rates, which is consistent with investors viewing this group as riskier. In contrast, loans originated by lower credit borrowers in affected areas receive higher inflows of credit and are charged lower interest rates, which is consistent with investors demonstrating altruistic behaviors. These effects are short-lived and not driven by new information, suggesting that temporary behavioral biases induced by salient events have real economic implications.