IFin Seminar, Marco di Maggio - Harvard Business School ""Invisible Primes: Fintech Lending with Alternative Data
Institute of Finance
Date: / -
Speaker: Marco di Maggio - Harvard Business School
Title: "Invisible Primes: Fintech Lending with Alternative Data"
Date: February 26, 2021
We exploit anonymized administrative data provided by a major fintech lender to investigate whether using alternative data to assess borrowers' creditworthiness results in broader credit access. We compare the actual outcomes of the fintech lender’s model to counterfactual outcomes based on a ‘traditional model’ used for regulatory reporting purposes and find that the latter would result in a significantly higher probability of being rejected and higher interest rates for those approved. The borrowers most positively affected are the `invisible primes': borrowers exhibiting low FICO scores and short credit histories, but with a low propensity to default. Finally, we show that funding these loans leads to better economic outcomes for the borrowers and higher returns for the fintech lender.