P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?

Roure, Calebe de; Pelizzon, Loriana; Thakor, Anjan V.

doi:10.2139/ssrn.3174632

Cited by 58 publications

(23 citation statements)

References 41 publications

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“…Although P2P lending platforms seek to maximize the number of matches between lenders and borrowers, we argue that P2P lending platform eventually match loans only for borrowers in Group 1, and segment the loan market, based on the empirical findings by De Roure et al [23], Tang [24]. (In this study, we combined the finding from De Roure et al [23]-P2P lenders tend to be bottom fishers and P2P loans are riskier, with that from Tang [24]-P2P lending platforms are essential substitutes for banks, as a stylized fact for our setting. We also want to note that [39] observe a similar kind of vertical separation of the hospitality market after the entry of Airbnb.…”

Section: Borrowers' Type and Market Segmentationmentioning

confidence: 95%

“…Thakor and Merton [22] suggested that banks have a stronger incentive to manage a trust, but P2P lending platforms tend to experience more adverse effects from a loss of trust. De Roure et al [23] found that P2P lenders tend to be bottom fishers, P2P loans are riskier, and the risk-adjusted interest rates for P2P loans are lower than those for bank loans. Tang [24] found that P2P platforms are essentially substitutes for banks and mostly serve the same borrower population, despite their unique potential.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

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Peer-to-Peer Lending and Bank Risks: A Closer Look

Yeo

Jun

2020

Sustainability

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This study examined how the expansion of peer-to-peer (P2P) lending affects bank risks, particularly insolvency and illiquidity risks. We compared a benchmark case wherein banks are the only players in the loan market with a segmented market case wherein the loan market is segmented by borrowers’ creditworthiness, P2P lending platforms operate only in the low-credit market segment, and banks operate in both low- and high-credit segments. For the segmented market case compared with the benchmark one, we find that, while banks’ insolvency risk increases, their illiquidity risk decreases such that their overall risk also decreases. Our results imply that sustainable P2P lending requires an appropriate differentiation of roles between banks and P2P lending platforms—P2P lending platforms operate in the low-credit segment and banks’ involvement in P2P lending is restricted—so that the growth of P2P lending is not adverse for bank stability.

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Section: Borrowers' Type and Market Segmentationmentioning

confidence: 95%

Section: Theoretical Backgroundmentioning

confidence: 99%

Peer-to-Peer Lending and Bank Risks: A Closer Look

Yeo

Jun

2020

Sustainability

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“…In a more recent paper, De Roure, Pelizzon, and Thakor () find that risk‐adjusted rates on P2P loans were lower than those on bank loans in Germany and concluded that P2P lenders were bottom fishing. Jagtiani, Lambie‐Hanson, and Lambie‐Hanson () find that, for FHA mortgage borrowers (i.e., borrowers who are more likely to be underserved than the conventional mortgage borrowers), fintech lenders offer a lower rate than traditional mortgage lenders on average.…”

Section: The Literaturementioning

confidence: 99%

The roles of alternative data and machine learning in fintech lending: Evidence from the LendingClub consumer platform

Jagtiani

Lemieux

2019

Financial Management

220

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There have been concerns about the use of alternative data sources by fintech lenders. We compare loans made by LendingClub and similar loans that were originated by banks. The correlations between the rating grades (assigned by LendingClub) and the borrowers’ FICO scores declined from about 80% (for loans originated in 2007) to about 35% for recent vintages (originated in 2014–2015), indicating that nontraditional data (not already accounted for in the FICO scores) have been increasingly used by fintech lenders. The rating grades perform well in predicting loan default. The use of alternative data has allowed some borrowers who would have been classified as subprime by traditional criteria to be slotted into “better” loan grades, allowing them to obtain lower priced credit.

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“…In particular, we add to the conversation about the advantages of firms that exploit financial technology (fintech firms) over incumbents-whether P2P lending is a substitute for or complement to bank lending. Whereas most studies focus on the substitute role between banks and fintech lenders from the demand side (Buchak et al, 2018;De Roure et al, 2019;Tang, 2019), we examine the supply side, which new theoretical papers, such as Thakor and Merton (2018), are beginning to investigate further.…”

Section: Conclusion and Discussionmentioning

confidence: 99%

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

Saiedi

Mohammadi

Broström

et al. 2020

Entrepreneurship Theory and Practice

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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.

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P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?

Cited by 58 publications

References 41 publications

Peer-to-Peer Lending and Bank Risks: A Closer Look

Peer-to-Peer Lending and Bank Risks: A Closer Look

The roles of alternative data and machine learning in fintech lending: Evidence from the LendingClub consumer platform

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

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