Distrust in Banks and Fintech Participation: The Case of Peer-to-Peer Lending

Abstract

What has boosted crowdfunding’s growth? In the case of peer-to-peer (P2P) lending, we highlight the role of consumers’ distrust in banks. We offer evidence that distrust in banks likely triggers individuals to supply funding toward crowdfunding and away from bank deposits. We highlight that a distrust mindset promotes questioning default choices and considering alternatives, and fosters comparisons focusing on dissimilarities. Our findings suggest US states whose residents express greater distrust in banks are more likely to fund P2P loans and, conditional on funding, lend higher amounts. This relationship is more pronounced when funding small loans or borrowers with less banking access.

Digitization in the Market for Entrepreneurial Finance: Innovative Business Models and New Financing Channels

“…Conversely, the drivers of the diffusion of alternative financial markets have received relatively less attention. Saiedi et al (2021) tackle this issue in P2P lending. They consider drivers of the supply of funds (i.e., the lender side), and focus attention on the role of distrust in banks and other traditional financial institutions arising from individuals' perception of these institutions as incapable, unreliable, and/or opportunistic.…”

“…Previous studies have highlighted (extrinsic and intrinsic) "positive" motivations that are related to the expected increase of the personal utility of crowd investors in P2P lending (e.g., Lin et al, 2013). Saiedi et al (2021) point to a "negative" motivation of P2P lenders, distrust in banks, that reduces their opportunity cost of making a bid to P2P loans.…”

Crowdfunding for Independent Print Media: E-Commerce, Marketing, and Business Development

“…The donator gives money and expects nothing in return [71,85,86]. As lending-based crowdfunding is quite like banks remitting loans, banks have identified this category of crowdfunding as a way of acquiring new customers [69,[87][88][89]. Reward-based crowdfunding is often used as a preselling/preordering method for inventions and new products [90].…”

Adoption of fintech services: role of saving and borrowing mechanisms

“…Such firms are viewed as key drivers of financial inclusion, innovation, and efficiency because of their potential to increase access to finance (Buckley et al, 2019), reduce the costs of financial intermediation (Philippon, 2019), improve consumer welfare, reduce behavioral biases with regard to wealth management (D'Acunto et al, 2019), and increase GDP growth (Shofawati, 2019). Moreover, distrust in banks in the wake of the 2007/2008 Global Financial Crisis has enabled investors and borrowers to tap alternative investment opportunities such as funding firms in online peer-to-peer (P2P) lending and crowdfunding platforms (Saiedi et al, 2020), which offer higher yield than bank deposits. In addition, the changing market dynamics and evolving consumer preferences have also helped propel fintech lending growth and exerted pressure on incumbent financial institutions to adopt fintech approaches or to establish alliances with the new entrants.…”

“…In terms of the drivers of fintech participation in online P2P lending and crowdfunding, the literature has documented extrinsic motivating factors such as adherence to social norms (Deci and Ryan, 2010), monetary incentives (Pierrakis and Collins, 2013), and reciprocity (Colombo et al, 2015). Moreover, intrinsic drivers, especially in the case of crowdfunding include pro-social and altruistic behavior (Guidici et al, 2018;Cholakova and Clarysse, 2015), sensation-seeking attitude and excitement to participate in P2P lending (Demir et al, 2021;Daskalakis and Yue, 2018), and distrust in banks (Saiedi et al, 2020). In terms of the use of personal wealth management fintech solutions, such as the use of robo-advisors, several studies find perceived complexity and effectiveness (PwC, 2019), age and gender (David and Sade, 2019;Todd and Seay, 2020), self-assessed financial experience (Hohenberger et al, 2019), income, and subjective and objective financial knowledge (Fan and Chatterjee, 2020;Todd and Seay, 2020), and social influence and trust (PwC, 2019;Gan et al, 2021) as determinants of robo-advisor adoption.…”