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

67 Pages Posted: 25 May 2018 Last revised: 27 Feb 2021

See all articles by Sudheer Chava

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Rohan Ganduri

Emory University

Nikhil Paradkar

University of Georgia

Yafei Zhang

Georgia Institute of Technology - Scheller College of Business

Date Written: September 30, 2017

Abstract

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

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

Sudheer Chava

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

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://https://fintech.gatech.edu

Rohan Ganduri

Emory University ( email )

1300 Clifton Rd
Atlanta, GA 30322
United States

Nikhil Paradkar (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
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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