Winners and Losers of Marketplace Lending: Evidence from Borrower Credit Dynamics

Marketplace Lending and Consumer Credit Outcomes: Evidence from Prosper

“…The most closely related papers to ours are Balyuk (2017), who also uses Prosper data to study the credit outcomes of Prosper borrowers, and Chava and Paradkar (2018). Balyuk (2017) finds borrowing from Prosper increases subsequent revolving credit limits and utilization rates, increases mortgage borrowing, and has no significant effect on delinquency rates.…”

“…4 Because we follow individuals in the CCP, our sample is not subject to this issue. Chava and Paradkar (2018) use credit bureau data to compare the credit outcomes of borrowers from an unnamed online marketplace lender to the outcomes of a matched sample of non-borrowers. Specifically, borrowers are matched to individuals in the same zip code who have a recent hard credit check and who have a similar credit card usage and credit scores in the months preceding the marketplace loan origination.…”

“…First, roughly one-quarter of the population examined by Chava and Paradkar have subprime credit scores while our study contains only individuals with credit scores above 640 due to the underwriting criteria imposed by Prosper. Second, the references groups are not the same; in our case, borrowers are compared to other individuals who applied for a marketplace loan but did not take one out and, in Chava and Paradkar (2018), it is individuals with similar credit profiles who had a recent bank-initiated hard credit check but may not have applied specifically for a marketplace loan.…”

“…The difference in the credit profiles of borrowers across our samples partially accounts for the differences in results. For instance, the increase in defaults in Chava and Paradkar (2018) is driven entirely by the subprime population, while there is no difference in default rates for their prime and superprime populations.…”

Spillover Effect of Peer-to-Peer Lending on the Loan Losses of Commercial Banks.

“…Early studies in this area investigate how fund providers evaluate borrowers (e.g., Michels 2012;Duarte, Siegel, and Young 2012;Zhang and Liu 2012;Lin, Prabhala, and Viswanathan 2013). More recent studies consider the market mechanism (e.g., Wei and Lin 2017;Vallee and Zeng 2019;Du, Li, T. Lu, and X. Lu 2019) and the interaction between peer-to-peer (P2P) lending platforms and the traditional banking system (e.g., Butler, Cornaggia, and Gurun 2017;Cornaggia, Wolfe, and Yoo 2018;Tang 2019;Chava, Paradkar, and Zhang 2019). Studying this interaction is important because a borrower can typically choose to borrow from a bank, a P2P lending platform, or both.…”