Trust As an Entry Barrier : Evidence from FinTech Adoption

This paper studies the role of trust in incumbent lenders (banks) as an entry barrier to emerging FinTech lenders in the credit markets. The empirical setting exploits the outburst of the Wells Fargo scandal as a negative shock to the trust in banks. Using a difference-in-differences framework, I find that increased exposure to the Wells Fargo scandal leads to an increase in the probability of borrowers using FinTech as mortgage originators. Utilizing political affiliation to proxy for the magnitude of trust erosion in banks in a triple-differences specification, I find that, conditional on the same exposure to the scandal, a county experiencing more trust erosion has a larger increase in FinTech share relative to a county experiencing less trust erosion. Treatment effect heterogeneity estimation from generic machine learning inference suggests that trust is less critical in FinTech adoption for the African American borrowers