5/29/2023 0 Comments Ppp blue acorn![]() ![]() ![]() While traditional banks have established borrower relationships and extensive Bank Secrecy Act (BSA) compliance programs, many FinTech lenders had few established relationships and may have been less diligent when establishing formal procedures, with little reputation to protect.Īlternatively, FinTech lenders have been shown to use financial data with increased speed and accuracy. However, the rapid expansion of FinTech lending may have come at the expense of underwriting standards. FinTech lending was recognized for broadening access to PPP loans, particularly to smaller firms without preexisting lending relationships with traditional banks, and for facilitating quick and efficient lending when many small businesses were in need of funds due to the COVID-19 pandemic. ![]() Although FinTech lenders began with a slow start, with less than 5% of loans in round 1, they ramped up to over 80% of loans by May 2021, highlighting their growing importance. The Paycheck Protection Program (PPP), a historic COVID-19 relief program for businesses, rapidly distributed over $793 billion of funds in three short rounds spread between April 2020 and May 2021. FinTech lenders offer a new banking model that replaces traditional lending relationships with online advertisements, application programming interfaces, and loan screening algorithms. A large aspect of the scrutiny and regulation of traditional banking was its perceived role in the financial crisis, which included facilitating widescale mortgage fraud, as partially evidenced by over $137 billion in government fines and settlements (Griffin, Kruger, and Maturana ( 2019)). ( 2018) find that an increase in regulatory burdens for traditional banks is the predominant driver in the rise of FinTech lending. The melding of financial technology and banking, also known as FinTech lending, has emerged at a rapid pace in the aftermath of the financial crisis. A disclosure statement is available on The Journal of Finance website. Griffin is an owner of Integra Research Group, Integra FEC, and Integra REC, which engage in research, financial consulting, and recovery on a variety of issues related to the investigation of financial fraud. We thank Integra Research Group for research support and the University of Texas McCombs Research Excellence Grant. Government Accountability Office, The University of Texas at Austin, the UT Dallas Fall Finance Conference, and the Western Finance Association Conference. We are also thankful for comments from seminar and conference participants at the ASU Sonoran Winter Finance Conference, the Federal Reserve Bank of Atlanta, the Finance Research Association Conference, Georgetown University, Hong Kong Baptist University, the Lone Star Finance Conference, the Office of the Comptroller of the Currency, Pontificia Universidad Católica de Chile, the RCFS Winter Conference, the Society for Financial Studies Cavalcade, the Texas Finance Festival, the U.S. We thank Stefan Nagel (the editor), an anonymous associate editor, two anonymous referees, Andres Almazan, Zahi Ben-David, Bo Bian, Bruce Carlin, Jonathan Cohn, Matt Denes, Mark Egan, Isil Erel, Michael Faulkender, William Fuchs, Arpit Gupta, Umit Gurun, Ben Hébert, Jessica Jeffers, Mark Johnson, Jack Liebersohn, Zack Liu, Christos Makridis, Thorsten Martin, Alex Priest, Alberto Rossi, Laura Starks, Boris Vallée, Brian Wolfe, Constantine Yannelis, Yao Zeng, Harold Zhang, Eric Zwick, BlueAcorn, Capital Plus, Itria Ventures, anonymous industry participants, and many others for helpful comments. Griffin, Samuel Kruger, and Prateek Mahajan are all at McCombs School of Business, The University of Texas at Austin. ![]()
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