The role of bank–FinTech partnerships in creating a more inclusive banking system

Abstract

FinTech firms are often viewed as competing with banks. Instead, more recently, there has been increased partnership and collaboration between FinTech firms and banks. These partnerships have allowed banks to access more information on consumers through data aggregation, artificial intelligence/machine learning (AI/ML) and other tools. This paper explores explore the demographics of consumers targeted by banks that have entered into such partnerships. Specifically, the paper tests whether banks are more likely to extend credit offers (by mail) and/or credit originations to consumers who would have otherwise been deemed high risk, either because of low credit scores or lack of credit scores altogether. The paper uses data on credit offers based on a survey conducted by Mintel, as well as data on credit originations based on the Federal Reserve’s Y-14M reports. Additionally, the paper analyses a unique data set of partnerships between FinTech firms and banks compiled by CB Insights to identify the relevant partnerships. The paper concludes that banks are more likely to offer credit cards and personal loans (and grant larger credit limits) to the credit-invisible and below-prime consumers after the FinTech partnership period. Similarly, it finds that FinTech partnerships result in banks being more likely to originate mortgage loans (and grant larger loan amount) to nonprime homebuyers. Overall, the paper concludes that bank/FinTech partnerships could help to move towards a more inclusive financial system.