Digital loans and buy now pay later from LendTech versus bank loans in the era of ‘black swans’: Complementarity in the area of consumer financing

Abstract

Research background: People who take non-banking loans are primarily perceived as excluded from accessing bank services. The growth of e-commerce and the increasing digitalisation of customer interactions with banks was particularly accelerated by the COVID-19 pandemic (the first ‘black swan’). These processes have also influenced the rapid growth of the LendTech (LT) sector within FinTech with its digital loans and buy-now-pay-later (BNPL) services. The war in Ukraine (the second ‘black swan’) has led to an energy crisis, increased inflation, interest rates and credit costs, and reduced credit accessibility. In this context, the following research questions are addressed: Are the LT and banking sectors complementary or substitutive in the area of consumer financing? Does complementarity apply to all customer segments and loan amounts? How does the extent of complementarity or substitutability of the LT sector depend on, and to what extent do changes in the regulatory and macroeconomic environment affect, the interaction between the banking and LT sectors? Purpose of the article: The aim of the article is to identify trends in the LT sector within FinTech in the context of assessing the scale and determinants of current and future complementarity of the non-bank sector and the banking sector in the area of consumer credit in time of black swans. An additional purpose of the article is to estimate revenues from the basic operating activities of companies from the on-line channel. Methods: The research process was multi-stage and the research procedure was structured. Due to the lack of a uniform source of data on LT products and services, the study used many data sources — data from the Credit Information Bureau, a primary nationwide survey on LT users a primary survey of people representing LT's managerial staff. The selection of LTs was carried out according to the concept of the monetary sampling unit. The Horvitz-Thompson estimator with Sen‐Yates‐Grundy variance form was used to estimate net operating income for LT from the online channel in 2021. Findings & value added: The LT companies surveyed state that black swans (the COVID-19 pandemic and the war in Ukraine) and the current macroeconomic situation have not significantly affected demand for non-banking loans. The reduction in the opportunities for the LT sector as a result of anti-usury regulations will only lead to a shift in consumer demand to the pawnshop sector and the shadow economy, which will be detrimental to consumers. Complementarity between LT and the banking sector is revealed especially in crisis situations, thus limiting the effects of market shock (limited supply of loans offered by banks). In periods of stabilisation, a rather clear division of preferences is noticeable – in the case of seniors and loans for higher amounts, banks dominate, while in the case of lower amounts and in younger age groups, non-bank institutions are more popular. The mechanism by which shrinking banking services are replaced by LT in short-term crises confirms the importance of LT in balancing the Consumer Finance market in the face of unstable periods. From a medium- and long-term perspective, it should be noted that inflation and rising interest rates will increase the scale of credit exclusion in commercial banks, shifting part of the demand to the non-bank sector. These phenomena have an international dimension. Similar observations were made already in 2012 by the CFPB in the USA and the British FTA, when analysing the consumer finance market immediately after the subprime crisis, emphasising the effects of limiting access to bank consumer loans and the resulting growth of the LT market (Gębski, 2013).