Information Advantage, Relationship Advantage and Competition in Banking Industry

I study competition among asymmetrically informed lenders in loan markets. In the past few years, a new competitor called FinTech emerges in financial markets. In loan markets, an important feature of FinTech companies is that they can acquire information about borrowers' characters, that incumbents have not acquired. This leads to an information advantage for FinTech. On the other hand, the incumbent lenders have to different advantage based on relationship with the borrowers. Thus, both types of lenders compete by using their own advantages. I find that as the results of the competition, both lenders can earn positive profit by using their respective advantages. I show, among others, that comparing with the competition between two incumbent lenders, the competition between the incumbents and FinTech improves social welfare without decreasing their profit