An Empirical View of Peer-to-Peer (P2P) Lending Platforms

Abstract

Peer-to-Peer (P2P) lending emerged over a decade ago and quickly evolved into a global industry. Since then, the P2P lending industry has become more complex, with increasingly diverse types of business models, each involving different risks and challenges. The Article analyzes the current state of the P2P market by exploring the different business models, the platforms' characteristics, the global market trends, and the different regulatory regimes around the world. As the COVID-19 pandemic bears an unprecedented effect on the global economy, we analyze its impact on P2P markets, especially focusing on small and medium entities (SMEs) as borrowers. While the COVID-19 crisis has had a profound impact on SMEs’ access to funding, alternative finance solutions, especially digital solutions, such as P2P lending, have come to play a crucial role in reducing the risk of bankruptcy for SMEs.

In light of this developing situation, we empirically analyze a rich and detailed data set on loans given by a large P2P platform to SMEs between the years 2014 and 2020, focusing on the interest rate set by the platform for both borrowers and lenders. Our main findings regarding the borrowers indicate that the interest rate decreases as the size of the loan increases; however, the rate goes up with the duration of the loan and from year to year. Significant differences in loan interest rates were found across loan statuses, corporation types, industries, and the genders of the SME owners. As for lenders, we show that the average interest rate increases with the size of the loan and decreases with the number of loans into which the investment is divided. The empirical findings highlight the significant variables affecting the interest rate, which is the most important feature of a loan, and the conclusions drawn in this study can thus serve both regulators and policy makers in designing their future responses to the evolving and growing market challenges, especially in these times of global health and economic crisis.

Keywords: Peer-to-Peer, FinTech, SME, COVID-19

JEL Classification: G23, K22, M21