Impact of Marketplace Lending on Consumers' Future Borrowing Capacities and Borrowing Outcomes

Using comprehensive credit bureau data, we document that consumers who borrow from marketplace lending (MPL) platforms have lower credit scores and higher default rates in the long run relative to observably similar applicants for bank loans. This underperformance of MPL borrowers is more pronounced when the MPL platforms provide less information to MPL investors, when MPL borrowers are benchmarked against relationship bank borrowers, and for one-time MPL borrowers than repeat MPL borrowers. Overall, our results suggest that MPL lenders face greater information asymmetries with respect to their borrowers than traditional banks.

Keywords: Consumer Credit, Credit Cards, Credit Scores, FinTech, Marketplace Lending, Defaults, Constrained Consumers

JEL Classification: D12, D14, G21, G23, O30, O33

Suggested Citation: Suggested Citation

Chava, Sudheer and Ganduri, Rohan and Paradkar, Nikhil and Zhang, Yafei, Impact of Marketplace Lending on Consumers' Future Borrowing Capacities and Borrowing Outcomes (September 30, 2017). Journal of Financial Economics (JFE), Forthcoming, Georgia Tech Scheller College of Business Research Paper No. 18-16, Available at SSRN: https://ssrn.com/abstract=3178322 or http://dx.doi.org/10.2139/ssrn.3178322