Do FinTech algorithms reduce gender inequality in banks loans? A quantitative study from the USA

Abstract

The potential of FinTech algorithms to decrease gender bias in credit decisions is limited by the impartiality of the data used to train them. If the data is partial or biased, the algorithmic decision-making process may also be discriminatory, exacerbating existing inequalities. In this study, the effect of FinTech Firms on reducing gender inequality in bank loans in the USA is examined using a loan application from 60 U.S. banks from 2012 to 2022. We use a two-step system GMM approach to estimate the effect of FinTech algorithms on gender bias in credit decisions, focusing on female loan approval rates. Our results show that by controlling the other factor, banks with credit algorithms significantly increased the loan approval rates and thus reduced gender inequality in bank loans. Specifically, the female loan approval rates increased by 8% after banks adopted FinTech algorithms. We also find that the effect is more substantial for banks with higher baseline gender bias in credit decisions. We also performed the Difference in Difference analysis to analyse the policy shocks and FinTech adoption on bank loans’ gender inequality. Results of the study show that FinTech adoption and policy implications have significantly increased the loans for female borrowers. Our findings suggest that FinTech algorithms can potentially mitigate gender bias in credit decisions and promote gender equality in financial services.

Keywords

• FinTech
• algorithms
• gender inequality
• credit decisions