How Does P2P Lending Fit into the Consumer Credit Market?

Abstract

Why do retail consumers look for P2P financial intermediation? Are internet-based 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 non-construction consumer credit market in Germany. We show that P2P lending is servicing a slice of the consumer credit market neglected by banks, namely high-risk 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.

Keywords: P2P lending, financial intermediation, consumer credit

JEL Classification: D40, G21, G23, L86