Pricing strategies in BigTech lending: Evidence from China

Author:

Lu Lei1,Wei Jianxing2,Wu Weixing2,Zhou Yi3

Affiliation:

1. Asper School of Business University of Manitoba Manitoba Canada

2. School of Banking and Finance University of International Business and Economics Beijing China

3. Lam Family College of Business San Francisco State University San Francisco California USA

Abstract

AbstractThis paper analyzes a BigTech lender's pricing strategies in the business‐to‐customer unsecured loan market using a proprietary data set of consumer loans in China. We find that the credit rating constructed by the BigTech lender is informative of the customers' default risk. Moreover, the interest rate decreases and the credit limit increases with the credit rating. Interestingly, the BigTech lender charges different interest rates to its customers based on the customer channel, although it does not provide information about the customers' default risk. Following the passage of the China Banking Regulatory Commission Act, which reduced credit market competition, the BigTech lender increased the current rate and decreased the credit limit. We rationalize these empirical findings in a simple model of credit contract design.

Publisher

Wiley

Subject

Economics and Econometrics,Finance,Accounting

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