Abstract

New technology promises to expand the supply of financial services to borrowers poorly served by the banking system. Does it succeed? We study the response of FinTech to financial services demand created by the introduction of the Paycheck Protection Program (PPP). We find that FinTech is disproportionately used in ZIP codes with fewer bank branches, lower incomes, and a larger minority share of the population, as well as in industries with little ex ante small business lending. FinTech’s role in PPP provision is also greater in counties where the economic effects of the COVID -19 pandemic were more severe. Using the predicted responsiveness of traditional banks to the program in areas where they have branches as an instrument, we also show that only a small fraction of borrowers substituted to FinTech lenders when local traditional banks were not available.