Alternative Lending, Financial Access, and Household Indebtedness

While alternative lending by fintech and bigtech firms has become an important source of credit, its impact on aggregate household indebtedness has received limited research attention. This study examines whether alternative lending affects country-level household indebtedness and whether this relationship is shaped by financial development, particularly access to credit. We use a System GMM approach on a panel of 34 OECD countries from 2013 to 2019 to estimate the association between household debt-to-income ratios and alternative lending volumes, including interactions with country-level indicators of financial development and access to credit. To explore transmission channels, we add loan-level evidence from 157,651 loans from 2009 to 2020 originated by Bondora, a large European marketplace lending (MPL) platform, and test how borrower quality among new and recurring borrowers varies with financial development. Our findings reveal, that alternative lending is significantly associated with country-level household indebtedness, with a positive relationship in countries with easier access to credit and a negative one in relatively low-access settings. Loan-level evidence is consistent, showing that in high-access countries Bondora more often serves riskier and more indebted borrowers and attracts lower-creditworthiness first-time borrowers, potentially increasing household indebtedness. We contribute by demonstrating a non-monotonic relationship between alternative lending volumes and household indebtedness and identify the potential underlying mechanisms. Our findings imply that in high-access environments, alternative lenders complement banks by serving lower-quality borrowers, calling for stronger consumer protection. In less developed financial systems, alternative lending may substitute for bank credit.