Financial innovation and borrowers : evidence from peer-to-peer lending

The impact of technology-enabled (FinTech) lenders on bank credit is theoretically ambiguous. Banks can reduce credit if borrowing from FinTech lenders increases default risk. Alternatively, banks can provide more credit if such borrowing signals creditworthiness. I examine these possibilities using a unique setting of a large peer-to-peer lender. I find that banks increase credit for consumers who obtain peer-to-peer loans, especially consumers with inferior credit histories. Most borrowers use peer-to-peer loans to refinance expensive bank debt. Marginally funded borrowers consume these loans, but their bank credit increases nonetheless. These results are consistent with information spillovers from peer-to-peer lending to banking