Marketplace Lending: A New Banking Paradigm?

By Boris Vallée, Yao Zeng. The Review of financial studies, 2019

184 citations recorded by the source corpus.

Marketplace lending relies on screening and information production by investors, a major deviation from the traditional banking paradigm. Theoretically, the participation of sophisticated investors improves screening outcomes and also creates adverse selection among investors. In maximizing loan volume, the platform trades off these two forces. As the platform develops, it optimally increases platform prescreening intensity but decreases information provision to investors. Using novel investor-level data, we find that sophisticated investors systematically outperform, and this outperformance shrinks when the platform reduces information provision to investors. Our findings shed light on the optimal distribution of information production in this new lending model.Received August 29, 2018; editorial decision July 1, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Subfields: Economics and Econometrics, Finance, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/a0008288f82ae8f4b2df1c6dc48679533d02042b

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Citations in the corpus

Fintech Borrowers: Lax Screening or Cream-Skimming? (2020, background): “Vallee and Zeng (2018), for instance, examines how information provision by a marketplace lender to investors affects their performance, using a sudden reduction in the information about borrowers’”
Shadow Banking in a Crisis: Evidence from Fintech During COVID-19 (2021, unknown): “…and Gurun (2017) discover that a higher access to bank financing leads to a cut in the interest rates charged by fintech credit providers, Vallée and Zeng (2019) suggest that a reduction in the amount of borrower information provided to fintech investors weakens their ability to screen…”
Marketing in the Sharing Economy (2019, background): “Likewise, peer-to-peer lending platforms such as LendingClub enable consumers to provide funds to one another and even use them to screen loan applications (Vallee and Zeng 2018).”
Fintech Credit Markets Around the World: Size, Drivers and Policy Issues (2018, background): “4 Vallee and Zeng (2018) discuss a similar change – the removal by LendingClub, a US platform, of 50 out of 100 variables on borrower characteristics in 2014.”