SME financing frictions, fintech business models, and regulatory implications in the AI era

In our article, we discuss the weak financing situation of small and medium-sized enterprises (SMEs) and identify causes and solutions for financial frictions. We analyze the impact of artificial intelligence (AI) on the SME credit market (supply side, demand side, transactional dimension) and develop a framework within which all participants in this market operate. This analysis also considers the regulatory specifics that arise in particular from the use of AI in the lending process. This leads to a business model for financial technologies (fintech) enterprises. We contribute by offering recommendations for fintech, borrowers, lenders, and regulators in integrating AI in credit scoring for SMEs.