Winners and Losers of Marketplace Lending: Evidence from Borrower Credit Dynamics
80 Pages Posted: 25 May 2018 Last revised: 18 Jan 2019
Date Written: September 30, 2017
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: Suggested Citation