Defining and measuring fintech credit

BIS Quarterly Review  |  September 2018  | 
23 September 2018

(Extract from page 31 of BIS Quarterly Review, September 2018)

There is no internationally agreed definition of fintech credit. We define fintech credit broadly to include all credit activity facilitated by electronic (online) platforms that are not operated by commercial banks. This approach is consistent with that taken in CGFS-FSB (2017).

This definition of fintech credit encompasses all credit activity facilitated by platforms that match borrowers with lenders (investors). Depending on the jurisdiction, these platforms are referred to as "peer-to-peer (P2P) lenders", "loan-based crowdfunders" or "marketplace lenders".icon It also includes platforms that use their own balance sheet to intermediate borrowers and lenders. In principle, the credit activity of platforms provided by technology companies can also be included.

Compared with other credit providers, a unique characteristic of fintech credit entities is that they make use of digital technologies and innovations to interact fully (or largely) with customers online and process large amounts of customer information. At this point, commercial banks, even those with online services, do not digitise credit processes to the same degree and typically use offline processes and staff. Crucially, unlike fintech credit platforms, banks also accept demand deposits. This function is a key reason why commercial banks are subject to various prudential regulations and supervision, including extensive data reporting requirements. To date, fintech credit providers generally lie outside this prudential regulatory (and reporting) perimeter. For this reason, fintech credit is effectively considered part of the alternative credit market.

Measuring the size of fintech credit is challenging, in part because of its novelty, small size and diversity. Official national data are limited, as fintech credit platforms are not subject to regulatory reporting requirements in most jurisdictions. Hitherto, the most comprehensive data have been collected by the Cambridge Centre for Alternative Finance (CCAF), together with academic or industry partners. These data are compiled by surveying fintech platforms, and where possible supplemented with other information from public reporting and secondary sources (such as platform websites). Private sector data providers such as industry bodies or firms producing fintech credit analytics also provide some statistics (eg AltFi Data,, the Crowd Institute and P2PFA).

These and other data yield a reasonable picture of the size and recent growth of fintech credit markets across economies. However, there are several limitations. First, they do not include all platforms; some sources consider only the largest ones, in part because many platforms have very little turnover. Second, they exclude some types of activity that could arguably be considered as fintech credit. For example, online mortgage lenders, prominent in some countries, are generally left out, even when they automate nearly all processes and match borrowers with institutional investors.icon Similarly, in China, and more recently in the United States and some Latin American countries, large technology or "big tech" firms, excluded from most data sources, have become important lenders. Most notably, some e-commerce platforms now extend credit to merchants using their platform.icon Given these limitations, the amount of fintech credit is likely to be underestimated for some (key) jurisdictions. Lastly, data on the stock of total fintech credit, as opposed to new credit originated, are generally not available. While individual platforms may disclose very granular data on loan amounts, types, maturities, interest rates, defaults, etc, these data too are not available consistently for the sector as a whole.

icon These credit platforms are often grouped under the umbrella term of "internet finance" or "digital finance", which also includes platforms that facilitate equity or donation crowdfunding, or provide wealth management and insurance solutions. icon Prominent examples in the United States are Quicken Loans, Loandepot, Guaranteed Rate and Amerisave. icon For instance, Alifinance and its successor Ant Financial have provided loans and short-term funds to small and medium-sized enterprise vendors on Alibaba's platforms since 2010 (Chen (2016)). Amazon Lending provides loans to merchants on Amazon. In Argentina, Brazil and Mexico, Mercado Crédito provides working capital loans to entrepreneurs on Mercado Libre.