Fintech Lending: Financial Inclusion, Risk Pricing, and Alternative Information

Fintech has been playing an increasing role in shaping financial and banking landscapes. Banks have been concerned about the uneven playing field because fintech lenders are not subject to the same rigorous oversight. There have also been concerns about the use of alternative data sources by fintech lenders and the impact on financial inclusion. Continue reading

Where You Live Matters: The Impact of Local Financial Market Competition in Managing Online Peer-To-Peer Loans

P2P lending platforms provide equal access to funds to borrowers from across the country, removing any typical geographic restrictions in borrowing options. However, if P2P lending platforms are not immune to competition from local financial institutions and borrowers ultimately gain from the strategic interactions between the local financial institutions and P2P platforms, where a borrower lives might continue to matter!

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Trust and Credit: The Role of Appearance in Peer-to-peer Lending

Psychologists have long known that people form impressions of others purely based on their appearance. Although it is well known that appearance-based impressions affect labor market and election outcomes, little is known about the role appearance plays in financial transactions. In a P2P platform, can photographs of borrowers affect the loan performance?

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Social Tied Information: Friendship Networks and Information Asymmetry in Online P2P Lending

Friendship networks always plays an important role in economic activities. Since Akerlof (1970) introduced informational issues at the forefront of economic theory and Spence (1973) proposed the idea of signalling theory, a large number of studies discovered how to  mitigate the negative effect of information asymmetry in many area including economics and finance. In the traditional lending market, the problem are known as adverse selection and moral hazard. The underwriting process normally depends on hard information such as debt-to-income ratio. Information that is difficult to completely summarise in a numeric score is called soft information, which is important characteristics of the borrowers and of lending decisions. The P2P online lending is a decentralised form of money lending that connects borrowers and lenders through online services. How can lenders address the problem of information asymmetry in the online lending? A most cited P2P paper proposed a study of  the online friendships and Information Asymmetry in online P2P lending using data in Prosper.com. Continue reading

Are investors rational or perceptual in P2P lending? Evidence from China

Zhang and Liu (2012) proposed a study of rational herding effect in P2P markets using data from Prosper.com. The study defined rational and irrational herding for P2P lenders, and found that well-funded borrower listings tend to attract more funding that lenders engage in active observational learning (rational herding). However, borrowers and lenders in China have more severe asymmetric information, how can we know whether investors rational or perceptual in this case? A recent study discovered investor decision-making behaviours in P2P lending from the perspective of rationality and sensibility. Continue reading