FinTech Credit and Entrepreneurial Growth
Yi Huang, Harald Hau, Chen Lin, Hongzhe Shan, Lai Wei and Zixia Sheng
Forthcoming, Journal of Finance
Based on automated credit lines to vendors trading on Alibaba’s online retail platform and a discontinuity in the credit decision algorithm, we document that a vendor’s access to FinTech credit boosts its sales growth, transaction growth, and the level of customer satisfaction gauged by product, service, and consignment ratings. These effects are more pronounced for vendors characterized by greater information asymmetry about their credit risk and with less collateral, which reveals the information advantage of FinTech credit over traditional credit technology.
How FinTech Enters China’s Credit Market
Yi Huang, Harald Hau, Hongzhe Shan and Zixia Sheng
American Economic Association Papers and Proceedings, 2019
Online trading platforms generate abondant vendor and consumer data accessible for credit analysis. Big data can thus give birth to FinTech firms that use both cheaper (on-line) distribution channels and better credit analysis to compete with traditional bank credit. China has been at the forefront of these developments due to the pervasive use of online trading platforms and an underdeveloped banking system which excludes large segments of the rural and bank remote population from traditional bank credit. This article documents stylized facts about the entry of FinTech credit into China’s credit market for small firm (vendor) credit.
The Distributional Effect of Fintech Credit: Evidence from E-commerce Platform Lending
Yi Huang, Ye Li and Hongzhe Shan
This paper provides the first evidence on the distributional effect of Fintech credit. Using comprehensive data from Alibaba, one of the largest e-commerce platforms and fintech lenders, we estimate the causal impact of platform credit on the size distribution of small businesses. We find that platform credit promotes firm selection: credit leads to stronger growth of market share for online merchants that are already larger and better rated by customers. Credit increases a merchant’s market share especially when product demand is expanding, suggesting that the distributional effect is due to heterogeneous investment opportunities. Contrary to conventional wisdom, credit does not affect product pricing. Lastly, we analyze the information set of the platform as a lender, and document a dynamic effect: merchants’ credit score assigned by the platform is correlated with their market share and customer ratings. A feedback loop arises between market status and platform credit that accelerates firm selection in this fast growing entrepreneurial space.