AI, SME Financing, and Bank Digitalization

Abstract

With the development of digital technology, the way that banks serve small-and medium-sized enterprises (SMEs) has undergone a disruptive change. Besides labor-intensive ways, banks can now serve SMEs through technology-intensive ways such as big data and artificial intelligence (AI). This has given rise to internet banks and made traditional banks face the choice of digitalization, thus igniting the technological competition in the banking sector. This paper builds a competition model among three types of banks, including small and medium internet banks with unique data advantages, large banks with economies of scale, and regional small and medium banks with comparative advantages in acquiring internal information. Then, the paper studies the digitalization strategies of different types of banks and their influence on the financing options of SMEs. The model shows that there may be a digital matching relationship between banks and SMEs in the era of AI. Large banks and small and medium internet banks have the advantage in the research and development and application of digital loan technology and serve SMEs with a more digital footprint. Regional small and medium banks have an advantage in traditional loan means and serve SMEs with a less digital footprint. This paper suggests that banks choose the transformation direction and development orientation according to their own conditions, such as bank scale, data accumulation, and internal information screening capability because this affects not only the development of banks and but also the extent to which AI can improve the financing environment for SMEs. These conclusions not only provide a theoretical basis for the decision-making mechanism of bank digitalization strategy and the applicability of AI to different types of banks but also have important policy implications for the government to better promote the digital transformation of banks and alleviate the financing constraints for SMEs.

Keywords

artificial intelligence, big data, digital transformation, bank competition

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