FinTechs and Racial Discrimination in Lending

FinTechs and Racial Discrimination in Lending

 

 

Rachel M. B. Atkins

New York University (NYU) - Department of Management and Organizational Behavior

Lisa D. Cook

Michigan State University - Department of Economics and James Madison College; NBER

Robert Seamans

New York University (NYU) - Leonard N. Stern School of Business

Date Written: January 9, 2022

Abstract

We assess the role of FinTech firms in loans made through the Paycheck Protection Program (PPP). The PPP program, created by the U.S. government as a response to the COVID-19 pandemic, provides loans to small businesses so they can keep employees on their payroll. We argue that FinTech firms’ reliance on technology rather than relationship-banking approaches used by traditional banks helps to address discrimination in lending, at least in part. Using newly released data on the PPP program, we find support for our arguments: while Black-owned businesses received loans that were approximately 50 percent lower than observationally similar White-owned businesses, the effect narrows considerably when FinTechs are allowed to provide loans.