Working Paper: NBER ID: w20899
Authors: Adair Morse
Abstract: Can peer-to-peer lending (P2P) crowdfunding disintermediate and mitigate information frictions in lending such that choices and outcomes for at least some borrowers and investors are improved? I offer a framing of issues and survey the nascent literature on P2P. On the investor side, P2P disintermediates an asset class of consumer loans, and investors seem to capture some rents associated with the removal of the cost of that financial intermediation. Risk and portfolio choice questions linger prior to any inference. On the borrower side, evidence suggests that proximate knowledge (direct or inferred) unearths soft information, and by implication, P2P should be able to offer pricing and/or access benefits to potential borrowers. However, social connections require costly certification (skin in the game) to inform credit risk. Early research suggests an ever-increasing scope for use of Big Data and incentivized re-intermediation of underwriting. I ask many more questions than current research can answer, hoping to motivate future research.
Keywords: Peer-to-peer lending; Crowdfunding; Consumer lending; Information frictions; Disintermediation
JEL Codes: G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| P2P lending (G51) | disintermediation of traditional financial intermediaries (G29) |
| removal of intermediation costs (G29) | capture of rents by investors (D33) |
| proximate knowledge from social connections (D80) | enhance credit risk assessment (G21) |
| enhanced credit risk assessment (G21) | better pricing and access for borrowers (G21) |
| increased use of big data and algorithmic risk scoring (C55) | enhance underwriting processes (G22) |