The determinants of cross-country differences in fintech and bigtech credit markets

Oskar Kowalewski - IESEG School of Management and Polish Academy of Sciences;

Paweł Pisany - Polish Academy of Sciences;

Emil Ślązak - Warsaw School of Economics

-- The development of financial technology (fintech) has changed the way financial services are provisioned across countries and, more importantly, it seems to be changing the way we think of banking and finance. Technology shapes banks’ practices and can be used to boost their effectiveness, but it also creates opportunities for alternative financial business models to prevail.

The availability of non-banking online personal loans, home equity loans and home equity lines of credit, peer-to-peer financing online platforms and marketplace platforms with various types of financial products, and business-dedicated financing models, such as merchant-cash advances, supply-chain financing, and digital invoice trading, has enriched the landscape of modern credit markets. Consequently, the position of banks and other traditional financial institutions that are still leaders in credit markets are being subjected to pressure nowadays and may be perceived as being undermined by small fintech and bigtech firms, with the latter being large technology companies entering financial markets.

In our latest empirical study, “What determines cross-country differences in fintech and bigtech credit markets?, we have attempted to shed light on the factors affecting the development of fintech and bigtech credit services while using the most recent, comprehensive database prepared by Cornelli et al. (2020). We have sought to contribute to the rapidly growing literature (see, for example, Claessens et al., 2018; Rau, 2018; Haddad and Hornuf, 2019) mostly by investigating the cultural and social determinants of the development of alternative technology-based debt financing options (fintech and bigtech credit).

Using a data sample from 94 countries from 2013–2019, we confirmed the relevance of the availability of credit data, both the traditional and alternative types, with the latter being known as the so-called “digital footprint.” Furthermore, we have provided evidence to confirm the positive role of strengthening Internet privacy protections in fostering the development of the fintech credit market, which may not necessarily be the case for the bigtech credit market.

We then discuss the positive impact of a high level of institutional quality on the development of alternative technology-driven credit options. The development of the fintech credit market is fostered by the strength of both principal institutions, like the rule of law, and credit-specific institutions, especially in terms of insolvency framework effectiveness; for bigtech credit, however, only the latter matters.

Interestingly, we found that unique national cultural profiles (proxied by the cultural dimensions outlined by Hofstede (2011)) can encourage the development of fintech and bigtech credit markets. The level of fintech credit market development is negatively associated with high Power distance index, Uncertainty avoidance index, and Long term index and is positively associated with the level of Individualism and Indulgence in a society. Conversely, the development of the bigtech credit market is positively interconnected with the Power distance index and Long term index, while it is negatively linked to Individualism and Indulgence. We believe that fintech credit services are perceived as “democratic,” decentralized, and entrepreneurial and are perceived as an alternative form of financing, while bigtech credit services are, from a cultural perspective, viewed as being based on just another corporate big business model, like banks. This leads to differentiation in which cultural factors support these technology-driven forms of debt financing. Finally, we showed that the fintech credit market develops faster in countries characterized by high levels of societal distrust toward banks. The opposite seems to be the case with the bigtech credit market.

In conclusion, our study presents the big picture of the links between the development of fintech and bigtech credit markets and a set of institutional, social, psychological, and cultural factors. Such factors enrich the way we understand the supporting environment for fintech and bigtech credit services and, more importantly, they can be used to confirm that the two types of technology-driven credit services are distinct phenomena that may have different links in various economies and societies. Bigtech and fintech credit should, therefore meet a balanced response from regulators and supervisors, taking into account their unique and different potential for monopolies as well as the various levels and unique nature of the risks to financial stability, consumer rights, privacy, transparency, and fairness.


This research was supported by the National Science Center (NCN), Poland, under grant no. 2019/33/B/HS4/00369.

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