P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?
67 Pages Posted: 8 May 2018 Last revised: 28 Nov 2018
Date Written: April 18, 2018
We develop a simple theoretical model to motivate testable hypotheses about how peer-to-peer (P2P) platforms compete with banks for loans. The model predicts that (i) P2P lending grows when some banks are faced with exogenously higher regulatory costs; (ii) P2P loans are riskier than bank loans; and (iii) the risk-adjusted interest rates on P2P loans are lower than those on bank loans. We confront these predictions with data on P2P lending and the consumer bank credit market in Germany and find empirical support. Overall, our analysis indicates the P2P lenders are bottom fishing when regulatory shocks create a competitive disadvantage for some banks.
Keywords: P2P lending, bank lending, competition
JEL Classification: G21
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