The Role of Fintech in Mitigating Information Friction in Supply Chain Finance
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This paper examines how financial technology (fintech) reduces “information friction” to help close financing gap in the supply chain by lowering the probability of a good firm being misclassified as bad.
Recent advances in fintech, such as blockchain and artificial intelligence, could help improve the efficiency of supply chain finance. “Double marginalization” makes a bank’s optimal fintech investment level lower than the socially optimal level. This calls for mechanisms to incentivize or complement banks’ investment in fintech.