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Book part
Publication date: 2 August 2021

Daniel Cosgrove and Imran Chowdhury

In this chapter, the authors focus on the development of the peer-to-peer (P2P) lending industry in China. As a modern borrowing platform, P2P lending allows clients to obtain…

Abstract

In this chapter, the authors focus on the development of the peer-to-peer (P2P) lending industry in China. As a modern borrowing platform, P2P lending allows clients to obtain funding from peer lenders for a multitude of loan purposes, including credit consolidation, personal purchases, and the development of business ventures. However, the speed at which this industry has grown has created numerous problems for regulatory agencies, particularly in China, the largest P2P lending market in the world. This chapter examines how lenders in the Chinese context continue to function as formal institutions regulating this sector continue to grow following a series of highly publicized illegal lending activities in recent years. Additionally, the authors determine whether implemented regulatory measures are providing an overall benefit or detriment to the Chinese P2P lending industry. Finally, the authors highlight the potential for positive social change and social entrepreneurship arising from P2P lending, particularly in terms of the empowerment of traditionally disadvantaged groups by providing access to capital. The authors use the P2P lending industry in the United States, currently the second largest in the world and one operating in a highly regulated financial industry, as a comparison for the Chinese case.

Details

Entrepreneurship for Social Change
Type: Book
ISBN: 978-1-80071-211-9

Keywords

Article
Publication date: 7 September 2015

Robert H. Rosenblum, Susan A. Gault-Brown and Amy B. Caiazza

To provide an overview of the basic model used by many peer-to-peer lending platforms and some of the key peer lending regulatory and structuring considerations under the federal…

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Abstract

Purpose

To provide an overview of the basic model used by many peer-to-peer lending platforms and some of the key peer lending regulatory and structuring considerations under the federal securities laws.

Design/methodology/approach

Explains how the basic peer lending model works, how “borrower dependent notes” or “BDNs” may be offered in private placements or less commonly through public offerings, how companies engaged in peer lending are compensated, how sponsors of peer lending programs generally avoid registration as broker-dealers under the Securities Exchange Act of 1934, as investment advisers under the Investment Advisers Act of 1940 and as investment companies under the Investment Company Act of 1940, and how peer lending platforms are structured to take into account the laws that govern online transactions, consumer privacy, and other related issues.

Findings

The authors expect that peer-to-peer lending platforms will continue to mature and evolve, and they expect that the issues discussed in this article will continue to drive their structuring decisions, business models, and regulatory compliance under the federal securities laws.

Originality/value

Practical guidance from experienced financial services lawyers.

Article
Publication date: 16 August 2021

Tímea Ölvedi

The purpose of this paper is to investigate investor behavior in the market of peer-to-peer lending, which is an alternative form of finance, from the liquidity perspective.

Abstract

Purpose

The purpose of this paper is to investigate investor behavior in the market of peer-to-peer lending, which is an alternative form of finance, from the liquidity perspective.

Design/methodology/approach

Liquidity metrics and regressions are used to identify the trend of the market and the variables that significantly impact the successful resale, selling time and discount rate in the secondary market. Structural break analysis is used to examine the impact of COVID on the market.

Findings

There is a high demand for performing loans that are sold quickly; however, the discount rate is also high, which reflects the price of liquidity. Based on the results obtained from regressions, the main factors that impact the investors’ decisions are discount rate, borrower’s country, principal and the month passed after loan origination. Furthermore, it can be concluded that the pandemic has led to a structural break in March 2020, and investors have started to liquidate their claims.

Practical implications

This paper’s purpose is to add to the research that examines the secondary market in social lending. It also contributes to the understanding of an investor’s decision and behavior, which are key parts of the segment’s long-term sustainability from the demand perspective. The comprehensive understanding of a lender’s behavior is also essential for supervisory authorities and other participants of the financial market.

Originality/value

Previous studies mostly focused on credit risk aspects, whereas this paper contributes to the modest research of liquidity features. The added value of this paper is further supported by the use of a large European secondary market data set, including more than 5 million transactions, covering an 18-month horizon. Moreover, the market’s sensitivity is analyzed in the case of an external shock. In the beginning of 2020, the COVID outbreak caused an economic shutdown in many European countries. The paper examines how these uncertain economic conditions impact the secondary market.

Details

Studies in Economics and Finance, vol. 39 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 13 September 2022

Laura Gonzalez

Peer-to-peer (P2P) lending facilitates direct online lending and aims to provide financial inclusion and investment returns. Lender goals range from for-profit to pro-social and…

Abstract

Purpose

Peer-to-peer (P2P) lending facilitates direct online lending and aims to provide financial inclusion and investment returns. Lender goals range from for-profit to pro-social and objective information is limited, which highlights the need to examine heuristics.

Design/methodology/approach

This study examines 1,347 lending decisions by finance students on a mock P2P site. Testimonials were used to randomly condition the financially literate lenders towards for-profit or pro-social decision-making. Each investor evaluated three loans. The three loan applications were identical except for a female or male headshot (vs an icon) and random reports of 50% funding for the female or male loan in 3 days (vs 11 days for opposite gender and 7 for icon). Previous research surveys students on a mock platform (Gonzalez, 2020) and reports similar heuristics and lifelike decisions in student and general population samples (Gonzalez and Komarova, 2014).

Findings

Lenders randomly conditioned towards pro-social lending state lower trust in borrowers. However, pro-social investors state lower risk in P2P lending and higher financial literacy. Second, pro-social investors are more confident when lending to borrowers highly trusted by other lenders, especially if the popular loan applicant is female. Third, pro-social conditioning increases lending to male applicants when the popular loan applicant is female. Fourth, pro-social investors who have experienced financial trauma have greater confidence in bad loan recovery.

Originality/value

This is the first study of heuristics in pro-social vs for-profit P2P lending. In addition, it shows that testimonials can effectively condition lending goals and affect trust and risk perceptions.

Details

Managerial Finance, vol. 49 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 30 October 2018

Lucia Gibilaro and Gianluca Mattarocci

This paper aims to collect data from a unique database provided by LendInvest and to study the key differences in the lending features for the two types of lending solutions.

Abstract

Purpose

This paper aims to collect data from a unique database provided by LendInvest and to study the key differences in the lending features for the two types of lending solutions.

Findings

Peer-to-peer (P2P) loans are prevalently short-term financing solutions (bridge financing), and the size of the loan is above average of the market. The loan portfolio is normally more geographically concentrated with respect to the average for the overall market and the main geographical areas for P2P lending are not just the main markets served by traditional lenders. Areas served by P2P lending have a lower population income than the national average and are characterized by below-average real estate price performance.

Research/limitations/implications

The results support the hypothesis of a complementary relation between conventional and P2P lending, showing that the latter represents a solution that is servicing areas that, because of the lower value of the collateral and lower average income, do not have easy access to the traditional mortgage market.

Originality/value

The paper is a first empirical contribution on the analysis of the market served by P2P real estate lending financing solution.

Details

Journal of European Real Estate Research, vol. 11 no. 3
Type: Research Article
ISSN: 1753-9269

Keywords

Article
Publication date: 18 February 2021

Mohammad Tariqul Islam Khan and Yong Yee Xuan

Despite the emergence of peer-to-peer (P2P) lending in Malaysia, there is a knowledge gap on what drives the lending decision of P2P lending in the emerging Malaysian market. This…

Abstract

Purpose

Despite the emergence of peer-to-peer (P2P) lending in Malaysia, there is a knowledge gap on what drives the lending decision of P2P lending in the emerging Malaysian market. This research investigates how borrower's loan tenure, funding purpose, verified documents, accumulated transaction and repayment history, age, trustworthy and geographical resemblance affect likelihood of lending decision in P2P platform.

Design/methodology/approach

Using snowball sampling, survey data was collected from 300 online banking users who were willing to invest in online P2P platform from different states in Malaysia (i.e. Selangor, Malacca, Johor and Negeri Sembilan). For estimation, regression analyses were estimated.

Findings

The findings suggest that borrower's loan tenure and borrower's age increase the probability of lending in online P2P platform, while funding purpose of credit card reduces the likelihood of lending in the P2P platform. The findings contribute to the signalling theory.

Practical implications

The findings imply that borrowers need to concentrate on loan tenure and clearly indicate their age in the listing in order to increase the funding probability. Moreover, they are suggested not to submit listing for credit card as funding purpose.

Originality/value

This study is first in its nature about P2P lending in Malaysia and the possible factors that influence lending decisions in this new financing platform.

Details

Review of Behavioral Finance, vol. 14 no. 3
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 12 April 2022

Huosong Xia, Ping Wang, Tian Wan, Zuopeng Justin Zhang, Juan Weng and Sajjad M. Jasimuddin

The paper focuses on the variables that help analyze peer-to-peer (P2P) lending platforms. It explores the characteristic factors of identifying problematic platforms, and designs…

Abstract

Purpose

The paper focuses on the variables that help analyze peer-to-peer (P2P) lending platforms. It explores the characteristic factors of identifying problematic platforms, and designs a P2P platform risk early warning model.

Design/methodology/approach

With the help of web crawler software, this paper crawls the information of 1427 P2P platforms from the two largest third-party lending information platforms (i.e. P2Peye and WDZJ) in China. SPSS 22.0 was mainly used for basic descriptive statistical analysis, reliability and validity analysis, and regression analysis of the data. MPLUS 7.0 was used for confirmatory factor analysis and structural equation models analysis.

Findings

Based on the multi-dimensional information, this paper performs text mining to develop an investor sentiment index. This study shows that the characteristics of the platform (i.e. basic features, capital security, operations management, and social network) have a significant impact on identifying problematic platforms.

Research limitations/implications

There are some limitations to this research. In the process of model construction, some external factors may be ignored, such as government policies. Future research will need to consider the impact of policy and other factors more comprehensively on P2P lending platform risk identification.

Practical implications

This study proposes an effective method for investors and regulators to identify the risk factors of P2P lending platforms. The research findings provide valuable insights for promoting government participation in platform management as well as a healthy development of the P2P lending industry.

Originality/value

The paper addresses the factors that influence platform risks to help analyze P2P lending platforms. Prior research has not explored how to identify problematic P2P lending platforms in-depth and is limited by only focusing on either soft information or hard information. It identifies the characteristic factors of identifying problematic platforms and designs a P2P platform risk early warning model.

Details

The Journal of Risk Finance, vol. 23 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 15 March 2022

Mohammad Tariqul Islam Khan

Despite a large stake of investment by retail investors and a growing number of peer-to-peer (P2P) lending platforms coupled with the initiation of secondary market and strong…

Abstract

Purpose

Despite a large stake of investment by retail investors and a growing number of peer-to-peer (P2P) lending platforms coupled with the initiation of secondary market and strong regulatory framework, less is known what leads investors to trust in P2P (TP2P) lending platforms in a multi-ethnic country, Malaysia. This study aims to investigate the effects of individual characteristics (gender, age, ethnicity, education and income), social influence of P2P (SIP2P) lending and privacy of P2P (PP2P) lending on the trust in emerging P2P platforms.

Design/methodology/approach

A cross-sectional survey was conducted to collect the data from retail investors in Malaysia. A variance-based partial least squares-structural equation modeling (PLS-SEM) model was applied to examine the significant predictors of TP2P lending platforms.

Findings

The results show that while investors' income is positively related to TP2P lending platforms, younger investors are less likely to have trust on P2P lending platforms. PP2P lending platforms increases retail investors' trust toward P2P platforms in Malaysia.

Practical implications

P2P service providers are suggested to give especial attention to investors' specific characteristics to develop trust and attract investors to the platforms. Service providers need to ensure the privacy of potential investors' personal and confidential data to build investors' trust.

Originality/value

This is the first study to assess retail investors' trust toward online P2P lending platforms in Malaysia, where this alternative financing platform gradually gaining popularity.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Book part
Publication date: 15 March 2022

Amy Yueh-Fang Ho, Wen-Chang Lin and Hung-Yuan Yu

Peer-to-Peer (P2P) lending, which makes borrowers and investors meet directly through online platforms bypassing traditional financial institutions, is an emerging financing…

Abstract

Peer-to-Peer (P2P) lending, which makes borrowers and investors meet directly through online platforms bypassing traditional financial institutions, is an emerging financing market after the traditional financial institutions crushed during the global financial crisis from 2007 to 2009. P2P lending platforms meet the credit demand more efficiently and play a vital role for the credit market and economic activity. This study sheds light on whether the credit spread of P2P lending is well predictive of economic activity compared to the bond credit spread which has been fully investigated in prior studies. Our findings show that the P2P credit spread performs similarly in predicting the economic activity as bond credit spread only during the financial crisis. However, the predictive power of P2P credit spread becomes inverse during the noncrisis periods since P2P lending platforms provide an alternative and easier financing channel to individuals who hardly borrow money for refinancing from traditional financial institutions. This study highlights the alternative role of P2P lending platform in financing and provides the evidence of different predictive powers of P2P credit spread on economic activity in different time periods.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-80117-313-1

Keywords

Article
Publication date: 16 August 2021

Eddy Junarsin, Mamduh Mahmadah Hanafi, Nofie Iman, Usman Arief, Ahmad Maulin Naufa, Linda Mahastanti and Jordan Kristanto

Innovation in digital technologies has been the main force in promoting growth and inclusion. However, the impact of such innovations remains ambiguous. Within this context, this…

Abstract

Purpose

Innovation in digital technologies has been the main force in promoting growth and inclusion. However, the impact of such innovations remains ambiguous. Within this context, this study aims to analyze the distribution of digitally empowered peer-to-peer (P2P) lending in Indonesia.

Design/methodology/approach

This study uses a quantitative approach to estimate the impact of technological innovation in promoting economic development. In particular, this study employs empirical panel data from 135 financial technology (FinTech) companies from 2015 to 2019 and use the dynamic panel threshold regression approach. This study collects secondary data to build the estimated model.

Findings

Contrary to conventional wisdom, this study’s evidence suggests that there is a delayed effect between the contribution of P2P lending by FinTech firms on economic growth in the country. While the immense growth of FinTech seems promising, the findings indicate that FinTech is far from its optimal point. This study calculates the optimal combination between productive and consumptive lending and between Java and non-Java. In view of this finding, this study proposes strategies to effectively distribute lending and bring about the expected benefit to the economy.

Practical implications

Since the contribution of P2P lending on economic development has not reached its optimum, the findings expose the limitation of current technological innovation in the financial sectors. In this sense, P2P penetration on the financing market needs encouragement. The calculations for optimal allocation between productive and consumptive and between Java and non-Java provide guidance to policymakers. This study helps practitioners to shape strategy and to begin experimenting with different approaches to distribute loans effectively.

Originality/value

To the best of the authors’ knowledge, there are no empirical studies that examine the impact of emerging FinTech companies in promoting economic growth and financial development. The findings close this research gap, especially in regard to innovation management literature, and provide insights for practitioners, policymakers and regulators.

Details

Journal of Science and Technology Policy Management, vol. 14 no. 1
Type: Research Article
ISSN: 2053-4620

Keywords

1 – 10 of over 1000