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Title: Wells Fargo Scandal Pushed Customers Toward Fintech, Says UC Davis
Study

Link: https://news.slashdot.org/story/25/07/03/2349...

BrianFagioli shares a report from NERDS.xyz: A new academic study has found
that the 2016 Wells Fargo scandal pushed many consumers toward fintech
lenders instead of traditional banks. The research, published in the Journal
of Financial Economics, suggests that it was a lack of trust rather than
interest rates or fees that drove this behavioral shift. Conducted by Keer
Yang, an assistant professor at the UC Davis Graduate School of Management,
the study looked closely at what happened after the Wells Fargo fraud erupted
into national headlines. Bank employees were caught creating millions of
unauthorized accounts to meet unrealistic sales goals. The company faced $3
billion in penalties and a massive public backlash. Yang analyzed Google
Trends data, Gallup polls, media coverage, and financial transaction datasets
to draw a clear conclusion. In geographic areas with a strong Wells Fargo
presence, consumers became measurably more likely to take out mortgages
through fintech lenders. This change occurred even though loan costs were
nearly identical between traditional banks and digital lenders. In other
words, it was not about money. It was about trust. That simple fact hits
hard. When big institutions lose public confidence, people do not just
complain. They start moving their money elsewhere. According to the study,
fintech mortgage use increased from just 2 percent of the market in 2010 to 8
percent in 2016. In regions more heavily exposed to the Wells Fargo brand,
fintech adoption rose an additional 4 percent compared to areas with less
exposure. Yang writes, "Therefore it is trust, not the interest rate, that
affects the borrower's probability of choosing a fintech lender." [...]
Notably, while customers may have been more willing to switch mortgage
providers, they were less likely to move their deposits. Yang attributes that
to FDIC insurance, which gives consumers a sense of security regardless of
the bank's reputation. This study also gives weight to something many of us
already suspected. People are not necessarily drawn to fintech because it is
cheaper. They are drawn to it because they feel burned by the traditional
system and want a fresh start with something that seems more modern and less
manipulative.

Read more of this story at Slashdot.

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