Market Concentration in Fintech

Abstract: This paper discusses the role of fintech lenders in consumer credit markets with a focus on residential mortgages.  We present evidence that shows that concentration among fintech lenders is significantly higher than for bank and other nonbank lenders.  The data also shows that the overall concentration in mortgage lending has declined between 2011 and 2019 driven mostly from a reduction in concentration among bank lenders. We present a simple model to show that changes in lender financial technology (interpreted as improvements in quality of loan services) explain more than 50 percent of the increase in fintech market shares and 43 percent of the increase in fintech concentration. This change in concentration in the fintech industry may have important implications for regulatory policy and financial stability.