Smart Lending (Job Market Paper)


This paper shows that a data-based screening technology can increase the cost of financial intermediation. The use of data in the screening process reduces the acquisition of soft information by traditional lenders, which harms constrained borrowers further. Additionally, groups in which fewer borrowers were financed in the past are under-represented in the data, leading to a cross-sectional difference in screening efficiency. Screening is more efficient for borrowers with greater historical lending data. When traditional and technological lenders coexist, the borrowers about whom data can provide precise information raise funds from technological lenders while those with less informative historical data choose traditional lenders who can make up for the lack of hard data-based information by acquiring soft information. The intermediation cost is increased by the existence of technological lenders. I identify conditions under which traditional lenders benefit from restricting their own access to data-processing technology when competing against the technological lender.