P2P lending, as a most important sector of financial innovation, is attracting more attention from traditional banks. Do borrowers’ activities in P2P platform affect their credit record in banking system?
Balyuk study how the emergence of the financial technology-driven public market for consumer debt in the form of peer-to-peer (P2P) lending affects credit provided by traditional financial intermediaries. The paper shows that innovation in the way hard information is processed influences both the supply of and the demand for credit from other financial intermediaries. On the supply side, credit intermediaries rely on certification by P2P lenders in their decision to increase access to credit for borrowers. This finding is consistent with increased accuracy of screening and information cascading to other lenders when multiple lenders make credit decisions sequentially. On the demand side, P2P lending induces refinancing of expensive credit card debt by highly creditworthy borrowers and increases debt-financed consumption by financially-constrained borrowers. There is no evidence that increased access to credit results in higher delinquencies. The results suggest that P2P lending mitigates financing frictions through repricing of credit and reduced credit rationing due to lower costs and/or improved accuracy of costly state verification. The final thought is that financial technology innovation can resolve some imperfections in the credit market.
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