Finance literature has frequently cited information asymmetry advantages of community banks due to their relationship banking orientation; however, financial technology firms (FinTechs) are beginning to leverage alternative data sources that may be eroding these advantages. Moreover, with increasing internet availability and the streamlined web-based credit application processes employed by FinTechs, community banks in rural markets may also be losing their proximity advantages. By analysing 5,852 community banks from 2012 to 2017 and drawing on information asymmetry and prospect theories, we hypothesize and find support for the idea that increasing competitive pressure from FinTechs is elevating the risk profile of community banks in rural markets. In addition to providing theoretical insights on the implication of FinTechs on the United States banking system, these findings may be fruitful for policymakers, as well as suggest the need for small, rural banks to embrace FinTech partnerships as part of their operating strategy.
Jones, Stephen D.; Ramirez, Ronald; and Khuntia, Jiban, "FINTECH AND INFORMATION ASYMMETRY REDUCTION: HOW FINANCIAL TECHNOLOGY INNOVATION IS INCREASING THE RISK PROFILE OF RURAL COMMUNITY BANKS" (2021). ECIS 2021 Research-in-Progress Papers. 56.
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