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How does P2P lending fit into the consumer credit market?

Author

Listed:
  • de Roure, Calebe
  • Pelizzon, Loriana
  • Tasca, Paolo

Abstract

Why do retail consumers look for P2P financial intermediation? Are internetbased peer-to-peer (P2P) loans a substitute for or a complement to bank loans? In this study we answer these questions by comparing P2P lending with the nonconstruction consumer credit market in Germany. We show that P2P lending is servicing a slice of the consumer credit market neglected by banks, namely highrisk and small-sized loans. Nevertheless, when accounting for the risk differential, interest rates are very similar. Our conclusion is that P2P lending is substituting the banking sector for high-risk consumer loans since banks are unwilling or unable to supply this slice of the market. Our study serves to show where the institutionalization of credit provision has left a slice of the market unsupplied.

Suggested Citation

  • de Roure, Calebe & Pelizzon, Loriana & Tasca, Paolo, 2016. "How does P2P lending fit into the consumer credit market?," Discussion Papers 30/2016, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:302016
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    References listed on IDEAS

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    1. Memmel, Christoph & Gündüz, Yalin & Raupach, Peter, 2015. "The common drivers of default risk," Journal of Financial Stability, Elsevier, pages 232-247.
    2. Ian Galloway, 2009. "Peer-to-peer lending and community development finance," Community Development Investment Center Working Paper 2009-06, Federal Reserve Bank of San Francisco.
    3. Puri, Manju & Rocholl, Jörg & Steffen, Sascha, 2011. "Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects," Journal of Financial Economics, Elsevier, vol. 100(3), pages 556-578, June.
    4. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    5. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    6. Adair Morse, 2015. "Peer-to-Peer Crowdfunding: Information and the Potential for Disruption in Consumer Lending," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 463-482, December.
    7. Devin G. Pope & Justin R. Sydnor, 2011. "What’s in a Picture?: Evidence of Discrimination from Prosper.com," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 53-92.
    8. Ian Galloway, 2009. "Peer-to-peer lending and community development finance," Community Investments, Federal Reserve Bank of San Francisco, issue Win, pages 19-23,39.
    9. Blaseg, Daniel & Koetter, Michael, 2015. "Friend or Foe? Crowdfunding Versus Credit when Banks are Stressed," IWH Discussion Papers 8/2015, Halle Institute for Economic Research (IWH).
    10. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, pages 393-410.
    11. Memmel, Christoph & Gündüz, Yalin & Raupach, Peter, 2015. "The common drivers of default risk," Journal of Financial Stability, Elsevier, pages 232-247.
    12. Mingfeng Lin & Nagpurnanand R. Prabhala & Siva Viswanathan, 2013. "Judging Borrowers by the Company They Keep: Friendship Networks and Information Asymmetry in Online Peer-to-Peer Lending," Management Science, INFORMS, pages 17-35.
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    14. Adair Morse, 2015. "Peer-to-Peer Crowdfunding: Information and the Potential for Disruption in Consumer Lending," NBER Working Papers 20899, National Bureau of Economic Research, Inc.
    15. Jefferson Duarte & Stephan Siegel & Lance Young, 2012. "Trust and Credit: The Role of Appearance in Peer-to-peer Lending," Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2455-2484.
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    Cited by:

    1. Xin Zhang & Christoph Bertsch & Isaiah Hull, 2017. "Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending," 2017 Meeting Papers 442, Society for Economic Dynamics.
    2. repec:onb:oenbfi:y:2017:i:q3/17:b:3 is not listed on IDEAS

    More about this item

    Keywords

    P2P lending; financial intermediation; consumer credit;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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