Is "Fintech" Good for Small Business Borrowers? Impacts on Firm Growth and Customer Satisfaction

"Fintech" is a rapidly expanding segment of the financial market that is receiving much attention from investors and increasing regulatory scrutiny. While the attention is rising, very little is known about the performance of these lending sources on the outcomes of small businesses that make use of them. The Federal Reserve's 2015 Small Business Credit Survey has data on the experiences of business owners with this new funding source and can provide some useful insights into this expanding sector, if compositional differences among the businesses that get bank loans, those that get fintech loans, and those that are denied credit are accounted for. We apply an inverse-probability-weighted regression adjustment and inverse-probability weighting from the treatment effects literature to adjust for compositional difference. We find: (1) online borrowers have characteristics that make them very much like the businesses who were denied credit, (2) the results for online lenders are hard to distinguish from either receiving no financing or receiving a bank loan, and (3) bank borrowers are more satisfied than online borrowers who are more satisfied than businesses who were denied credit. These results should inform the policy discussion on fintech and point to the need for clearer results on the effectiveness of online lenders to small businesses.