Bank Technological Innovation and SME Lending : Do We Experience a Transformation in a Bank-SME Relationship?

Over the past decade, banks have heavily invested in technological development, bringing hope to many underserved customers. However, the benefits of bank digitalization for small & medium-sized enterprises (SMEs) remain ambiguous. Using a sample of 179,921 SMEs and their borrowing relationships with the 54 largest European banks from 2008 to 2019, we show that bank technology has disproportionally benefited SMEs' access to short-term as opposed to long-term credit. At the same time, we observe an average increase in the cost of intermediation to SMEs, though the effect is non-monotonic. While there are some indisputable benefits of bank digitalization for SMEs, the acceleration of bank technological development is unable yet to address all problems associated with information asymmetry. We also posit that countries’ institutional differences still play a role in accessing bank credit for SMEs