Do FinTech Lenders Fairly Allocate Loans Among Investors? Quid Pro Quo and Regulatory Scrutiny in Marketplace Lending

71 Pages Posted: 8 Nov 2018 Last revised: 24 Jun 2021

See all articles by Liting Chiu

Liting Chiu

Bentley University

Brian Wolfe

University of Texas at San Antonio

Woongsun Yoo

Central Michigan University

Date Written: June 1, 2021

Abstract

Marketplace lending platforms select which investors will have the opportunity to fund loans. Platforms claim to fairly allocate loans between retail and institutional investors, but we provide evidence that contradicts this claim. Because of heavy regulatory intervention, platforms favor retail investors with lower defaulting loans, even after conditioning on observable information like credit scores and interest rates. Institutional investors appear to sway the platform; when the value of marginal loan volume from institutional investors is high, institutional investors are preferentially allocated lower defaulting loans. As platforms become constrained in their ability to produce similar quality borrowers, the value of marginal loan volume falls, and with it, the favorable allocation to institutional investors. The evidence suggests strategic platform behavior to maximize origination volume but also suggests a lasting effect of regulatory intervention in emerging capital market technologies.

Keywords: Financial Intermediation, FinTech, IPO, Financial Regulation, Retail Investors

JEL Classification: G21, G23, G28, L81

Suggested Citation

Chiu, Liting and Wolfe, Brian and Yoo, Woongsun, Do FinTech Lenders Fairly Allocate Loans Among Investors? Quid Pro Quo and Regulatory Scrutiny in Marketplace Lending (June 1, 2021). Available at SSRN: https://ssrn.com/abstract=3281358 or http://dx.doi.org/10.2139/ssrn.3281358

Liting Chiu

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

Brian Wolfe (Contact Author)

University of Texas at San Antonio ( email )

San Antonio, TX 78249
United States

HOME PAGE: http://https://sites.google.com/site/swimwolfe/

Woongsun Yoo

Central Michigan University ( email )

Mount Pleasant, MI 48859
United States

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