Essays in The Influence of Technology on Economics and Finance

Abstract

This paper investigates the impact technology-based lending on the profitability of traditional banks, employing the database from Cornelli et al. (2020). I confirm the detrimental effect of technology-based lending growth on bank profitability, with a 5.2% decrease in the ROAA ratio for each 1% increase in technology-based lending. These results are consistent after accounting for the instrumental variables regression to address endogeneity and alternative profitability indicators. Notably, BigTech lending has more substantial negative impact on bank profitability than FinTech lending, predominantly in developing countries. Technology-based lending negatively impacts bank profitability due to country characteristics rather than bank characteristics, rather than the characteristics of the bank itself. The additional negative shocks to banks are stronger when the banking sector is relatively competitive or credit accessibility is lower in the country where the bank is located. By further exploring the alternative channels, I observe that technology-based lending reduces banks' profitability by issuing more unsecured loans to maintain their original market share of lending services, reducing lending efficiency.