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P2.T9.806. FinTech credit markets

Nicole Seaman

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Learning objectives: Describe how FinTech credit markets are likely to develop and how they will affect the nature of credit provision and the traditional banking sector. Analyze the functioning of FinTech credit markets and activities, and assess the potential microfinancial benefits and risks of these activities. Examine the implications for financial stability in the event that FinTech credit grows to account for a significant share of overall credit

Questions:

806.1. Consider the following four business models in the FinTech space:

I. These platforms tend to provide recourse factoring to startup and small businesses
II. Loans are originated by a partner bank (e.g., LendingClub.com in the U.S. partners with WebBank) which often has regulatory advantages
III. Institutional investors fund originations by the platform and the platform retains the loans. Retail investors are assigned claims. (an example in the U.S. is sofi.com)
IV. Pure matching service between lenders and borrowers where individual loan contracts are established between borrowers and creditors (rather than the platform)

In no particular order, these descriptions refer to four business models:
  • Traditional P2P Lending model
  • Notary model
  • Balance sheet model
  • Invoice trading model
Which of the following correctly matches the business model to its summary description?

a. I = Notary, II = Balance, III = Traditional, IV = Invoice
b. I = Balance, II = Traditional, III = Invoice, IV = Notary
c. I = Invoice, II = Notary, III = Balance, IV = Traditional
d. I = Traditional , II = Invoice , III = Notary, IV = Balance


806.2. According to the BIS Working Group, FinTech credit activities offer both potential benefits and vulnerabilities. In regard to these advantages or disadvantages, according to the authors each of the following is true EXCEPT which is false?

a. A key competitive advantage of several FinTech credit platforms is user convenience
b. A key vulnerability of P2P lending platforms is their inherently high leverage and acute liquidity risk
c. FinTech credit platforms may be more vulnerable than banks to some operational risks such as cyber-risk
d. A key benefit of FinTech credit platforms is their tendency to increase accessibility, for example in emerging markets


806.3. Which of the following is most TRUE about the probable effect(s) of FinTech credit on financial stability?

a. A key policy implication of FinTech credit is its potential to foster financial inclusion
b. P2P lenders will invariably increase overall lending standards and this should helpfully contribute to counter-cyclical credit provision
c. Among the salient risks to financial stability are the tendencies of P2P lenders to entail maturity mismatch and intensify the degree of direct interconnectedness among each other
d. Given the large market share of the credit market is has already achieved, the most likely scenario is that FinTech credit platforms foster less competition and increased concentration (aka, the Amazon effect)

Answers here:
 
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