FinTech Marketplace Lending, Default Risk, and the Business Cycle

39 Pages Posted: 8 Jan 2021

Date Written: November 18, 2020


This paper explores default in the FinTech marketplace lending market using a dataset of both extensive credit and soft information for borrowers from the largest marketplace lender in the United States. I find that both macro and regional economic conditions play a role in consumer default and should be taken into consideration when assessing credit risk. I show that lenders operating in this market increasingly focus on subprime borrowers, whose default rates are more sensitive to macro and regional economic conditions than those of prime borrowers. Based on estimates from a duration model, I provide counterfactual analyses of what default rates and the associated total losses would look like in different economic scenarios. In the case of a recession, the losses would be 37 percent higher than in the case of an expansion. For the same volume of loans in the recession, doubling the subprime share would lead to an additional 7.5 percent increase in losses.

Keywords: FinTech, marketplace lending, P2P, default risk, losses, business cycle

JEL Classification: G21, G28, G18, G01

Suggested Citation

Azizaj, Eris, FinTech Marketplace Lending, Default Risk, and the Business Cycle (November 18, 2020). Available at SSRN: or

Eris Azizaj (Contact Author)

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

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