Study links bank AI use to more lending to distant small businesses

Banks that use more AI extend significantly more small business credit to distant borrowers, according to a research summary from the University of South Florida. The researchers used confidential US Census Bureau data from a period when AI adoption among banks rose from 14% in 2017 to 43% in 2019.

The increase in distant lending was largest in communities with unmet demand for small business credit and in areas with more minority owned businesses. Banks with greater AI use also recorded lower charge off rates among distant borrowers and charged them higher interest rates.

The researchers found no comparable increase in distant lending linked to cloud systems, other software or hardware. The study was conducted by Jeffery Piao of the University of Missouri Columbia, K. Philip Wang of the University of Florida and Diana L. Weng of the University of South Florida.