Abstract: In a model of spatial competition we study what drives fintech entry and how it affects competition, investment and welfare. Fintechs with inferior monitoring efficiency can successfully enter because of their superior flexibility in pricing. Hence, fintech borrowers are more likely to default than bank borrowers with similar characteristics. Higher bank concentration leads to higher fintech loan volume and quality. Fintech entry may induce banks’ exit and reduce investment; however, it will increase investment if inter-fintech competition is intense enough. The entry of fintechs with high monitoring efficiency will increase social welfare if the intensity of inter-fintech competition is moderate.
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