Keywords
FinTech, personal loans, credit score, nonprime borrowers, market segmentation
Abstract
FinTech lending—known for using big data and advanced technologies—promised to break away from the traditional credit scoring and pricing models. Using a comprehensive dataset of FinTech personal loans, our study shows that loan rates continue to rely heavily on conventional credit scores, including 45% higher rates for nonprime borrowers. Other known default predictors are often neglected. Within each segment (prime/nonprime) loan rates are not very responsive to default risk, resulting in realized loan-level returns decreasing with risk. The pricing distortions result in substantial transfers from nonprime to prime borrowers and from low- to high-risk borrowers within segment.
Original Publication Citation
FinTech Lending with LowTech Pricing (with Itzhak Ben-David, Jason Lee, and Vincent Yao)
BYU ScholarsArchive Citation
Johnson, Mark J.; Ben-David, Itzhak; Lee, Jason; and Yao, Vincent, "FinTech Lending with LowTech Pricing" (2023). Faculty Publications. 9242.
https://scholarsarchive.byu.edu/facpub/9242
Document Type
Working Paper
Publication Date
2023
Publisher
Fisher College of Business Working Paper Series
Language
English
College
Marriott School of Business
Department
Finance
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