FinTech P2P lending and bank loans in time of COVID-19

Abstract

This study investigates the dual impact of peer-to-peer (P2P) FinTech lending and the COVID-19 pandemic on bank lending in Indonesia spanning from 2016 to 2022. Rooted in Christensen’s theory of disruptive innovation, the research underscores how FinTech startups, by leveraging innovative technology, create intense competition for traditional banks (Christensen, 1997). Analyzing data from 121 banks, the findings reveal that the proliferation of P2P lending negatively influences bank loan growth, indicating a potential diversion of borrowers from traditional institutions. Surprisingly, the COVID-19 pandemic exhibits no significant impact on overall bank lending, highlighting the sector’s stability owing to government and financial institution interventions. Notably, when scrutinizing the joint impact of P2P lending and the pandemic, a positive effect on bank lending emerges, particularly benefiting smaller banks. This suggests that P2P lending activities complement traditional bank lending, especially during challenging periods like the pandemic. Smaller banks, in particular, demonstrate adaptability and resilience by strategically leveraging P2P lending, countering disruptions. The study underscores the pivotal role of smaller banks in navigating economic challenges, providing valuable insights for policymakers, regulators, and financial institutions to adapt to the evolving landscape of financial technology and enhance financial access for the public.