How Does On-line/P2P Lending Fit Into the Consumer Credit Market

In recent years, we observe the growth of the internet economy. That has progressively led to crowd-based” platforms that allow direct matching between lenders and borrowers. Via the so-called peer-to-peer (P2P) lending platforms the process of loan origination is given into the hands of private lenders and borrowers. The emergence of P2P credit market raises some fundamental questions that we aim to investigate with this project. How do P2P loans compare with bank loans on the dimensions of risk and risk-adjusted internet rates? How does the emergence of the P2P lending market affect the profitability and riskiness of bank loans? How does the emergence of the P2P credit market affect the aggregate volume of bank lending?

Although P2P lending is a relatively young sector, which started in 2005 with the launch of Zopa, an increasing amount of research has been devoted to the topic. The information technology nature of P2P lending grants access to granular data on credit provision and the investigation of new questions. On the one hand, by looking to the first period of this market, scholars ask to what extent consumers' characteristics impact their interest rate. On the other hand, researchers ask to what extent information facilitation and institutional design enhance credit provision. Our work abstracts from the behavioral aspects of the P2P credit market. Instead, we offer a macro-perspective by analyzing how the P2P market outcome fits into the credit market.

We examine how P2P lenders and banks compete for borrowers. We develop a simple, theoretical model of bank and P2P lending that generates three predictions we test.