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Technology, the nature of information, and fintech marketplace lending
The retail lending landscape has changed considerably over the past two decades, the most recent example being the rapid growth of online, or FinTech, lending to consumers and small businesses. This paper discusses how the boundary of the firm in the retail lending market is affected by advances in information technology that have turned what was previously soft information on borrower credit risk into encoded hard data that can be precisely transmitted across firms at a very low cost. The ability to collect and process information has become the critical resource for lending decisions, ...
Technological Innovation and Discrimination in Household Finance
Technology has changed how discrimination manifests itself in financial services. Replacing human discretion with algorithms in decision-making roles reduces taste-based discrimination, and new modeling techniques have expanded access to financial services to households who were previously excluded from these markets. However, algorithms can exhibit bias from human involvement in the development process, and their opacity and complexity can facilitate statistical discrimination inconsistent with antidiscrimination laws in several aspects of financial services provision, including advertising, ...
FinTech and Financial Innovation : Drivers and Depth
This paper answers two questions that help those analyzing FinTech understand its origins, growth, and potential to affect financial stability. First, it answers the question of why "FinTech" is happening right now. Many of the technologies that support FinTech innovations are not new, but financial institutions and entrepreneurs are only now applying them to financial products and services. Analysis of the supply and demand factors that drive "traditional" financial innovation reveals a confluence of factors driving a large quantity of innovation. Second, this paper answers the question ...
FinTech Lending, Social Networks and the Transmission of Monetary Policy
One of the main channels through which monetary policy stimulus affects the real economy is mortgage borrowing. This channel, however, is weakened by frictions in the mortgage market. The rapid growth of financial technology-based (FinTech) lending tends to ease these frictions, given the higher quality services provided under this new lending model. This paper establishes that the role of FinTech lending in the monetary policy transmission is further amplified by consumers’ social networks. I provide empirical evidence for this network effect using county-level data and novel ...
The fundamental problem in digital record-keeping is establishing consensus on an update to a ledger, e.g., a payment. Consensus must be achieved in the presence of faults—situations in which some computers are offline or fail to function appropriately. Traditional centralized record-keeping systems rely on trust in a single entity to achieve consensus. Blockchains decentralize record-keeping, dispensing with the need for trust in a single entity, but some instead build a consensus based on the wasteful expenditure of computational resources (proof-of-work). An ideal method of consensus ...