Consumer Credit in Italy: A Welfare Analysis

In order to promulgate effective consumer credit regulation, policy makers must understand the supply and demand for consumer credit as well as the economic and sociological benefits and detriments. After an explanation of each of these factors, the article proposes legislation and regulation that will reduce the damage but allow nonsuspect transactions to continue to occur.

Information asymmetries are known in theory to lead to inefficiently low credit provision, yet empirical estimates of the resulting welfare losses are scarce. This paper leverages a randomized experiment conducted by a large fintech lender to estimate welfare losses arising from asymmetric information in the market for online consumer credit. Building on methods from the insurance literature, we show how exogenous variation in interest rates can be used to estimate borrower demand and lender cost curves and recover implied welfare losses. While asymmetric information generates large equilibrium price distortions, we find only small overall welfare losses, particularly for high-credit-score borrowers.

This chapter discusses the period 1992–2000, when financial markets provided 'the largest single accumulation of wealth in the history of the United States'.2 This wealth was a product of increased investment by the US public. In the US, Washington relaxed its regulatory restrictions on banks' securities activities to promote direct financing. The 1990s represent a period of 'financial socialization' as the links between consumer credit (mortgages, for example) and financial market investment were truly linked. While participation in direct financing still belonged overwhelmingly to intermediaries (such as banks, brokers, or managed funds), the ability to repackage debt and credit became commonplace. The structure of the financial marketplace changed as direct financing was adopted within the US and by the US's major trading partners.

We examine a unique experiment of anonymizing online loan applications to test whether race-blind screening procedures reduce racial disparities in consumer credit. With names on applications, minority applicants are 10% less likely to receive online loan offers and receive worse offer terms than otherwise identical majority applicants. Anonymizing applications reduces such disparities substantially. High-income minority applicants benefit more than low-income minorities. We show that the racial disparities are not driven by differences in credit demand. Overall, anonymous loan applications reduce racial disparities in access to credit by increasing lender reliance on objective credit risk measures. This paper was accepted by Kay Giesecke, finance. Funding: This research is supported by the Ministry of Education, Singapore, under its Social Science Research Thematic Grant [Grant MOE2019-SSRTG-024]. P. Kabir acknowledges financial support from the National University of Singapore (NUS) [Start-Up Grant A-0003875-00-00] and the Singapore Ministry of Education [Academic Research Fund (AcRF) Tier 1 Research Grant A-8000758-00-00 & A-8000760-00-00]. T. Ruan acknowledges financial support from the Singapore Ministry of Education [AcRF Tier 1 Research Grant A-8000757-00-00]. Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2024.05026 .

With the rapid advancement of China's economy, the demand for consumer credit has surged, driven by diversified consumption scenarios and product categories. Consumer finance companies, alongside traditional commercial banks, have become pivotal in meeting this demand. The integration of financial technology (fintech) into the consumer finance sector has revolutionized the entire business process, encompassing pre-lending, lending, and post-lending phases. This study explores the application and impact of fintech on consumer finance companies, focusing on customer acquisition, risk management, and operational efficiency. Additionally, the study addresses the emerging risks associated with fintech, such as technological black boxes and algorithmic biases, which pose new challenges for risk management. By analyzing the fintech-enabled business processes and risk control mechanisms, this paper provides insights into optimizing fintech applications to enhance efficiency and mitigate risks in consumer finance companies.

Americans are famous borrowers. In 2007, household nonmortgage debt averaged 25 percent of disposable income, and 60 percent of households were in debt. If we include equity extracted from housing to make consumer purchases or pay down existing consumer debt, nonmortgage consumer indebtedness rises to 33 percent of disposable income for the same year. Nor was this pattern of indebtedness new. In 1980, at the threshold of financial deregulation, nonmortgage debt averaged 17 percent of disposable income. Why have American households relied so heavily on consumer credit? Two explanations have been proposed. On the one hand, financial liberalization beginning in the late 1970s freed financial markets to supply unmet demand for household credit. On the other hand, innovations in credit rating and risk assessment allowed lenders to overcome the adverse selection problem associated with risky borrowers. While both factors are probably important, they miss a critical feature that distinguished the U.S. credit market from those in most other advanced industrialized countries, namely, the early embrace of consumer lending by commercial banks.

We present a model with adverse selection where information sharing between lenders arises endogenously. Lenders' incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers, to the size of the credit market and to advances in information technology; on the other hand, such incentives are reduced by the fear of competition from potential entrants. In addition, information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market. These predictions are supported by international and historical evidence in the context of the consumer credit market. Information sharing is widespread in countries, such as Japan, the United Kingdom and the United States, where the geographical mobility of households is high and the consumer credit market is deep; while in countries with low mobility and thin consumer credit markets, e.g. Belgium and Italy, information sharing is minimal. The same predictions are also supported by US historical data.

Optimizing Consumer Credit Markets and Bankruptcy Policy

How Does P2P Lending Fit into the Consumer Credit Market?

The Anatomy of the Bond Market Turbulence of 1994

The rise of embedded finance and Buy Now Pay Later (BNPL) services are part of the growing trend towards digital payment and microcredit developments, and they represent an integration of financial services into the ecosystem of e-commerce and other platforms. These services may assist with financial inclusion goals by improving access to low and no credit for both consumers without access to banking services and small businesses. There is much disagreement regarding how BNPL and embedded finance can empower individuals. Some critics contend that these services democratize access to credit, but they create new danger through the potential for consumers to become over-indebted or that financial institutions will abuse consumer data; this raises questions about whether new products provide true ownership or empowerment. This paper evaluates the opportunity for empowerment created through the adoption of embedded finance and BNPL through secondary data sources from the World Bank's Global Findex, Worldpay's Global Payments Report 2025, the IMF's Financial Access Survey and the Statista database. Data analyses include a range of comparative market analyses used to determine whether improvements from BNPL adoption provide any measureable improvements to financial inclusion, credit penetration or participation in the small business market. The results of this research will provide a basis for conclusions about how digital credit products can provide more equitable financial inclusion than relying on the taste of immediate gratification or creating products intended solely for short-term consumption.

Over the last decade economic conditions, market dynamics, traditional business models and individual behavioral patterns underwent significant and rapid changes due to major natural disasters, global crises, technological advancements, pandemics, war and other global disruptive events (Liu et al., 2021). It shook the equilibrium, stability of and trust in existing systems and industries (Brychko et al., 2021; Ibn-Mohammed et al., 2021), while uncertainty and volatility became a new market reality, forcing individuals, companies, and institutions participants to adapt and modify their behaviors (Aldao et al., 2021; Fiszeder & Małecka, 2022) Understanding market participants’ behavior in the times of disruptive global events becomes crucial for individuals, corporations, and institutions operating in such an environment.

This study examines the value relevance of voluntary human capital disclosures by banks and the effect of the adoption of International Financial Reporting Standards (IFRS) on the value relevance of these disclosures. Human capital disclosures allow capital market participants to evaluate the intellectual capital of the disclosing banks, which in theory may enable market participants to assess the competitiveness of the bank’s human resource strategy and the productivity of the workforce vis-a-vis benchmark performance. While IFRS does not mandate particular form of voluntary human capital disclosures (VHCD), VHCD is expected to possess information content that is useful to market participants in their equity pricing decisions. The study is conducted using a cross-country sample of 10,199 bank-years that reported labor costs. Market participants, however, are found to relate VHCD negatively to prices and returns in common and civil law countries alike. Results also suggest that IFRS adoption reduces the value relevance of VHCD due to the abundance of alternative information provided under the more comprehensive IFRS framework that helps in the prediction of future cash flows. Finally, market participants find VHCD value relevant after IFRS adoption in common law countries potentially because it reduces uncertainty about an important determinant of the bank’s future performance. On the other hand, market participants in civil law countries view VHCD as value relevant but coming at added time and financial investment. As an application of the results to an emerging economy, the implications for the Egyptian accounting profession, banking sector and capital markets are discussed.

This article analyses the consumer’s decision to apply for credit and the probability of the credit being accepted in the euro area during a period characterized by the unprecedented concomitance of events and changing borrowing conditions linked to the global coronavirus disease 2019 (COVID-19) pandemic and the Russian invasion of Ukraine. We use data between 2020Q1 and 2023Q2 from the ECB’s Consumer Expectations Survey. We find that credit demand is the highest when the first lockdown ends and it drops when supportive monetary compensation schemes are implemented. There is evidence that constrained households are significantly less likely to apply for credit. Credit is more likely to be accepted under favourable borrowing conditions and after the approval of national recovery plans. We also find that demographic, economic factors, perceptions, and expectations are associated with the demand for credit and the credit grant.

The aim of the article is to study the features of different models of consumer behavior in order to model their purchasing response and the formation of long-term consumer loyalty to a particular brand. The model of consumer behavior is defined as a description of the relationship between the actions of the consumer of goods and the motives behind these actions, the characteristics of the consumer and the state of the environment in which these actions are carried out. The process of purchasing a product is considered as an action. The study analyzes foreign and domestic models of consumer behavior, approaches to modeling consumer behavior. The motives of product choice, the degree of awareness and independence of choice, the degree of consumer satisfaction with the product, directions and possibilities of influencing consumer choice are studied. Most models of consumer behavior are based on the study of lifestyles of different social strata. Three components of a person's way of life are considered: actions, interests and thoughts. Modeling of consumer behavior is based on the concept of «7 Os»: market participants, their goals; market items; companies present in the market; market operating processes; acquisition opportunities; channels that form methodological approaches to modeling consumer behavior. It has been proven that one of the main factors influencing the purchase decision is consumer loyalty – a system of long-term relationship between supplier and buyer, in which each party refuses to maximize its profits in favor of maintaining this relationship. The greatest contribution to the formation of consumer loyalty have a positive experience of consumption, rational evaluation associations with the brand and the overall strength of all associations with the brand, which sets it apart from alternatives. The formation of consumer loyalty is possible due to the integration into the model of factors of consumer motivation and situational opportunities, taking into account which will achieve greater predictability in predicting customer behavior. The paper proposes an algorithm for consumer loyalty management, which includes the implementation of the following steps: organization of a continuous system of customer service; providing continuous feedback from customers; involvement of customers in regular communication with the brand; creation of a personalized scenario of the client's needs development and formation of a narrowly segmented scenario of his development; encouraging customers to recommend a brand and building a community around the brand among customers who share the business idea. Thus, modeling consumer behavior allows us to understand how, on the one hand, consumers react to the motivating factors of marketing, and on the other – what is a significant competitive advantage for the company.