Fintech Lending and Debt Spiral
This paper investigates fintech lending practices exploiting mobile promotions to induce overborrowing and measure its economic and social impacts.
What it examines
This study examines whether fintech lenders use mobile promotional messages to trap borrowers into a debt spiral. It employs difference-in-differences and regression discontinuity methods on large-scale lending data to assess if approved borrowers receive more promotions and how this impacts their borrowing and spending behavior.
What it concludes
The findings reveal that borrowers receiving more promotions register additional loans, spend more, and face delinquencies and negative social effects, especially if they have low financial literacy or limited traditional credit. This research can help shape better consumer protection and regulatory strategies in fintech lending.
Evidence objects
Study reveals fintech lending triggers debt spirals, as promotional mobile messages lure borrowers into overborrowing, increasing consumption, loan delinquency, and economic and social impacts on vulnerable populations across developing markets.
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Surprisingly, approved borrowers receive more unsolicited promotional messages from various platforms than rejected applicants, highlighting powerful alternative data use in targeted marketing strategies and raising concerns about privacy and exploitation.
key_findings bullet 2 · key_findings · validation V0
Researchers introduce 'Message Passive' to classify borrower behavior via difference-in-differences and regression discontinuity analysis on 2.7 million observations, finding low financial literacy and limited credit access significantly intensify lending risks.
key_findings bullet 3 · key_findings · validation V0
The paper innovatively examines fintech lendings potential to trigger $debt spirals$ by analyzing alternative data and mobile message promotions. It presents original empirical insights that refine existing overborrowing literature. Novel in its methodology and focus, the study offers implications for regulatory policies and lending practices, making it an essential read.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … lending channels rely more on the access provided by consumer credit markets. Therefore, consistent with the Credit Access Channel, these borrowers are more likely to …
Source row: 869 · abstract type: snippet