Winners and Losers of Marketplace Lending: Evidence from Borrower Credit Dynamics

80 Pages Posted: 25 May 2018 Last revised: 18 Jan 2019

See all articles by Sudheer Chava

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Nikhil Paradkar

Georgia Institute of Technology - Scheller College of Business

Yafei Zhang

Georgia Institute of Technology - Scheller College of Business

Date Written: September 30, 2017

Abstract

Using comprehensive credit bureau data, we examine the credit dynamics of borrowers on a major marketplace lending platform (MPL). Relative to their neighbors with identical ex-ante credit dynamics, but with unmet credit demand (those originating unsecured installment loans) from banks, MPL borrowers' credit card balances decline 42% (13%) post-MPL origination, but revert to pre-MPL levels within 4 quarters. Their credit scores increase 21 (14) points immediately after origination, followed by an increase in credit card limits. In the next two years, MPL borrowers' higher indebtedness results in 96% (65%) higher default likelihood, with the effects more pronounced for constrained borrowers.

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

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

Suggested Citation

Chava, Sudheer and Paradkar, Nikhil and Zhang, Yafei, Winners and Losers of Marketplace Lending: Evidence from Borrower Credit Dynamics (September 30, 2017). 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

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://www.prism.gatech.edu/~schava6/

Nikhil Paradkar (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Yafei Zhang

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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