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Why do peer-to-peer (P2P) lending platforms fail? The gap between P2P lenders' preferences and the platforms’ intentions

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Abstract

In the current study, we examine why peer-to-peer (P2P) lending platforms play only a minor role in the finance industry in Israel, compared to the traditional banking system. We conducted two studies and attempted to discover if a discrepancy exists between the lenders' preferences and the platforms’ incentives. In the first study, we conducted a conjoint analysis to examine the impact of lenders' decisions to invest through P2P platforms. The second study examines the factors in which platforms use to determine the lending interest rate for loans. We found that although lenders wish to decrease their risk and guarantee their investment, P2P companies encourage riskier borrowers. This contradiction between the priorities of the lenders and those of the platforms may explain why the non-users consider P2P lending to be a high risk. We offer several suggestions to increase the attractiveness of the Fintech and lending platforms industry.

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Notes

  1. http://www.disruptivefinance.co.uk/2014/03/15/what-is-the-market-size-of-peer-to-peer-finance/.

  2. https://www.maximizemarketresearch.com/market-report/global-peer-to-peer-lending-market/54358/.

  3. https://economictimes.indiatimes.com/wealth/borrow/five-rights-of-loan-defaulters/articleshow/51752696.cms?from=mdr.

  4. Based on Bizportal data https://www.bizportal.co.il/capitalmarket/news/article/619815.

  5. Bank of Israel report, (3.2018).

    https://www.boi.org.il/he/NewsAndPublications/RegularPublications/DocLib3/BankIsraelAnnualReport/%D7%93%D7%95%D7%97%20%D7%91%D7%A0%D7%A7%20%D7%99%D7%A9%D7%A8%D7%90%D7%9C%202017/page1.pdf.

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Acknowledgements

This work was supported by The Heth Academic Center for Research of Competition and Regulation. We would like to thank the reviewers and the editor for helping us improve the paper.

Funding

This work was supported by the Heth Academic Center for Research of Competition and Regulation] under Grant RA1700000423.

Author information

Authors and Affiliations

  1. The Department of Economic and Business Administration, Ariel University, Ariel, Israel

    Galit Klein, Zeev Shtudiner & Moti Zwilling

Authors
  1. Galit Klein
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  2. Zeev Shtudiner
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  3. Moti Zwilling
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Corresponding author

Correspondence to Galit Klein.

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This work was supported by The Heth Academic Center for Research of Competition and Regulation.

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Appendix A: Correlation matrix

Appendix A: Correlation matrix

 

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5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

1. Amount requested

1

                    

2. Period of the loan

0.61*

1

                   

3. Arrears (1- loan in arrears; 0-open or closed loan)

− 0.00

0.01

1

                  

4. Returning debts

− 0.08

− 0.03

− 0.05

1

                 

5. Renovation of assets

0.11*

0.12*

− 0.02

− 0.35**

1

                

6. Purchase goods

0.00

− 0.07

0.08

− 0.28**

− 0.13**

1

               

7. Events

− 0.00

0.06

0.00

− 0.24**

− 0.11*

− 0.08

1

              

8. Investment in the business

0.11*

− 0.00

0.03

− 0.15**

− 0.07

− 0.05

− 0.04

1

             

9. Other

− 0.04

− 0.05

0.00

− 0.48**

− 0.22**

− 0.18**

− 0.15**

− 0.09*

1

            

10. Gender (0-male, 1-female)

− 0.13*

− 0.01

− 0.01

0.06

0.00

− 0.08

− 0.06

− 0.09*

0.06

1

           

11. Home ownership (1-own, 0-not)

0.34**

0.32**

− 0.16**

− 0.03

0.18**

− 0.04

− 0.01

0.00

− 0.07

− 0.15**

1

          

12. Income

0.31**

0.23**

0.04

− 0.05

0.09*

− 0.05

0.05

0.01

− 0.00

− 0.11**

0.27**

1

         

13. Seniority at work

0.09*

0.23**

− 0.04

0.06

0.00

− 0.07

0.03

− 0.06

− 0.02

0.03

0.34**

0.16**

1

        

14. Full-time work (1-full time, 0-other)

− 0.04

0.08

0.04

0.09*

− 0.05

0.09*

− 0.00

− 0.10*

− 0.08

− 0.00

− 0.07

0.00

− 0.05

1

       

15. Self-employed (1-self-employed, 0- other)

0.10*

− 0.03

− 0.05

− 0.05

0.05

− 0.06

− 0.01

0.14**

0.01

− 0.08

0.09*

0.07

0.12*

− 0.44**

1

      

16. Marital status (1-married, 0-other)

0.34**

0.34**

− 0.06

0.00

0.15**

− 0.11*

0.05

− 0.02

− 0.08

− 0.15**

0.50**

0.41**

0.18**

0.02

0.00

1

     

17. Providers (1- 2 or more providers, 0-solo)

0.36**

0.29**

− 0.06

0.00

0.10*

− 0.09*

0.04

− 0.03

− 0.04

− 0.11

0.40*

0.42**

0.12

0.01

− 0.03

0.65**

1

    

18. Academic Degree (1-have an academic degree, 0-no)

0.15*

0.08

− 0.04

0.09

0.02

− 0.04

0.00

− 0.03

− 0.08

− 0.06

0.06

0.03

0.04

− 0.12

0.14*

0.11

0.05

1

   

19. Credit profile -A/B

0.46**

0.18**

− 0.02

− 0.05

0.03

0.03

0.04

0.01

− 0.02

− 0.16**

0.27**

0.22**

0.03

0.00

0.04

0.22**

0.19**

0.09

1

  

20. Credit profile -C

0.32**

0.28**

− 0.00

0.05

0.02

− 0.00

− 0.03

0.35

− 0.06

− 0.05

0.24**

0.11*

0.17*

− 0.05

0.06

0.18**

0.20**

0.00

− 0.21**

1

 

21. Credit profile -D/E

− 0.38**

− 0.07

0.07

− 0.00

0.01

− 0.05

0.01

− 0.01

0.03

0.13**

− 0.29**

− 0.15**

− 0.06

0.05

− 0.06

− 0.20**

− 0.22**

− 0.06

− 0.40**

− 0.62**

1

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Klein, G., Shtudiner, Z. & Zwilling, M. Why do peer-to-peer (P2P) lending platforms fail? The gap between P2P lenders' preferences and the platforms’ intentions. Electron Commer Res 23, 709–738 (2023). https://doi.org/10.1007/s10660-021-09489-6

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