Important Factors Determining Fintech Loan Default: Evidence from the LendingClub Consumer Platform

54 Pages Posted: 29 Apr 2020

See all articles by Christophe Croux

Christophe Croux

EDHEC Business School

Julapa Jagtiani

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Tarunsai Korivi

affiliation not provided to SSRN

Milos Vulanovic

EDHEC Business School

Date Written: April, 2020

Abstract

This study examines key default determinants of fintech loans, using loan-level data from the LendingClub consumer platform during 2007–2018. We identify a robust set of contractual loan characteristics, borrower characteristics, and macroeconomic variables that are important in determining default. We find an important role of alternative data in determining loan default, even after controlling for the obvious risk characteristics and the local economic factors. The results are robust to different empirical approaches. We also find that homeownership and occupation are important factors in determining default. Lenders, however, are required to demonstrate that these factors do not result in any unfair credit decisions. In addition, we find that personal loans used for medical financing or small business financing are more risky than other personal loans, holding the same characteristics of the borrowers. Government support through various public-private programs could potentially make funding more accessible to those in need of medical services and small businesses without imposing excessive risk to small peer-to-peer (P2P) investors.

Keywords: crowdfunding, lasso selection methods, peer-to-peer lending, household finance, machine learning, financial innovation, big data, P2P/marketplace lending

JEL Classification: G21, D14, D10, G29, G20

Suggested Citation

Croux, Christophe and Jagtiani, Julapa A. and Korivi, Tarunsai and Vulanovic, Milos, Important Factors Determining Fintech Loan Default: Evidence from the LendingClub Consumer Platform (April, 2020). Available at SSRN: https://ssrn.com/abstract=3587657 or http://dx.doi.org/10.21799/frbp.wp.2020.15

Christophe Croux (Contact Author)

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Julapa A. Jagtiani

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Tarunsai Korivi

affiliation not provided to SSRN

Milos Vulanovic

EDHEC Business School ( email )

24, avenue Gustave Delory
CS 50411
Roubaix, 59057
France

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