Impact of FinTech Credit on Small E-Commerce Firms in China

GSEM Professor Harald Hau, along with Yi Huang, Chen Lin, Hongzhe Shan, Zixia Sheng, and Lai Wei, co-authored an article published in The Journal of Finance. The authors examine the impact of FinTech credit on small e-commerce firms in China using Ant Group's credit approval data. Their study finds that access to FinTech credit significantly boosts sales, transactions, and customer satisfaction, particularly for younger firms and firms without collateral. The findings highlight the competitive advantage of FinTech credit over traditional bank credit, as it more effectively mitigates information asymmetries and reduces credit distribution costs. Moreover, FinTech credit approval leads to increased advertising, product variety, and higher conversion rates from site visitor to buyer, enhancing the customer experience and contributing to the growth of China's private sector. These results provide insights into the potential benefits of FinTech lending in other developing economies with growing internet infrastructure.

ABSTRACT

Based on automated credit lines to about two million vendors trading on Alibaba’s online retail platform, and a discontinuity in the credit decision algorithm, we document that a vendor’s access to FinTech credit boosts its sales growth, transaction growth, and the level of customer satisfaction gauged by product, service, and consignment ratings. These effects are more pronounced for vendors with (1) sparse credit information; (2) less collateral; (3) higher distribution costs; and (4) weaker debt contract enforceability in local regions, all of which reveal a FinTech advantage over traditional credit technology.

The study is available here: FinTech Credit and Entrepreneurial Growth

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