Big techs, QR code payments and financial inclusion

Summary

Focus

Information asymmetries between small firms and credit intermediaries can reduce financing of good investment opportunities and keep promising entrepreneurial projects from being developed. To help solve this problem, small enterprises can post collateral, rely on credit history or build close and long-term relationships with specific lenders. Big data and machine learning, however, have provided a new solution, allowing large technology firms ("big techs") to use credit scoring techniques to provide lending to clients operating in their business platforms.

Contribution

We look at the example of Ant Group, which started providing payment services through QR codes, allowing offline merchants to access digital payment services. Ant Group uses the information collected through these services to decide on credit provision to merchants. We explore whether: (i) the use of QR codes in payments gives firms access to big tech credit; (ii) access/use of big tech credit lets firms access more traditional bank credit; and (iii) the use of QR codes in payments and the subsequent provision of credit has real effects on firms' business volume.

Findings

We use a unique dataset of around half a million Chinese firms that use a QR code-based mobile payment system. We find that: (i) the creation of a digital payment footprint allows firms to access credit provided by the same big tech company; (ii) transaction data generated via QR codes generate spillover effects on access to bank credit; and (iii) there are positive effects of access to big tech credit on sales, including during the Covid-19 shock. Our findings suggest that access to innovative payment methods helps micro firms build up credit history, and that the use of big tech credit can ease access to bank credit.

Abstract

Using a unique dataset of around half a million Chinese firms that use a QR code-based mobile payment system, we find that (i) the creation of a digital payment footprint allows firms to access credit provided by the same big tech company; (ii) transaction data generated via QR code generate spillover effects on access to bank credit; and (iii) there are positive effects of access to big tech credit on sales, including during the Covid-19 shock. The findings suggest that access to innovative payment methods helps micro firms build up credit history, and that using big tech credit can ease access to bank credit.

JEL classification: D22, G31, R30.

Keywords: big tech, big data, QR code, banks, asymmetric information, financial inclusion, credit markets.