In recent years, the trend of credit and fintech lending by technology companies has seen a huge leap. A study by Guillio Cornelli of the Bank for International Settlements and his co-authors finds that these alternative forms of lending have developed rapidly in places where the demand for credit is not satisfied and where a favorable institutional framework exists.
Fintech loan companies are those that offer credit online and are not managed by commercial banks. Big tech lending, the other subject of the study, refers to the trend of large companies such as Amazon and Google offering credit even if their main offering is digital services.
The authors estimate that in 2019, the value of fintech credit and big tech credit was $ 223 billion and $ 572 billion, respectively. They find multiple demand factors behind the rise of these models in all economies. In highly developed countries, the demand for credit is high, which gives impetus to fintech and big tech loans. Countries with fewer bank branches or with expensive banking services also recorded a higher demand for this type of credit in the authors’ study.
The study also highlights that countries with dedicated regulatory mechanisms for fintech and large tech loans allow them to grow, unlike strict banking regulations.
The authors note that these new entrants to the credit market are often not included in official credit statistics, which is a problem since the responsibility for monitoring credit lies with regulators.
However, the study cautions that the rapidly growing credit market involving such companies can also put financial systems at risk. The authors suggest that policymakers better monitor these new markets and assess their risks and potential.
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