Marketplace Lending, Information Aggregation, and Liquidity

Abstract

Lending marketplaces aimed at directly connecting retail lenders and borrowers retreat from auctions and, instead, set prices and allocate credit on their own, despite evidence that retail investors possess valuable soft and nonstandard information. We investigate this puzzle by analyzing a unique data set of 7,455 auctions and 34 million bids from a leading British peer-to-business platform. We find that the platform was vulnerable to liquidity shocks, resulting in sizable deviations from information efficiency. Deviations increased over time because of a growing role played by noncrowd players, particularly large investors and algorithms.

FinTechs and the Market for Financial Analysis

“…Our article is closest to Zhu (2019), in that we both use rich micro-level data to evaluate the economic consequences of changes in the availability of nontraditional data. Finally, our research is related to recent studies examining innovations in financial markets more broadly (Berg, Burgand, Puri, andGombović (2020), Franks, Serrano-Velarde, andSussman (2020), and Grennan and Musto (2020)) and retail investors' experiences with such innovation (Célérier andVallée (2017), Farrell, Green, Jame, andMarkov (2019), and Vallée and Zeng (2019)).…”

FinTech in the Small Food Business and Its Relation with Open Innovation

“…So, P2P lending can be said to be a financing model, namely a multi-sided platform that can facilitate financial institutions and small investors to fund startups and small businesses. P2P platforms have brought together individual investors with small business firms, and usually offer credit on a variety of systems other than the interest system [43,44].…”

Crowdlending: mapping the core literature and research frontiers

“…The reputation of P2P platforms in relation to credit risk assessment, together with the informal network of relationships among companies, can determine the ability of these companies to obtain P2P loans from a wide range of investors. Thus, active P2P platforms in the SME credit market act as intermediaries between investors (small investors and financial institutions) and firms, providing a wide variety of services such as credit screening (Wei and Lin 2017 ; Franks et al 2021 ). There are indirect network externalities between small investors and financial institutions.…”

“…Accordingly, P2P lending platforms act as intermediaries between lenders and borrowers. They facilitate exchanges through credit screening services, posted interest rates (Wei and Lin 2017 ; Franks et al 2021 ), default prediction (Franks et al 2016 ), and formal and informal lending procedures (Allen et al 2019 ).…”