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Reintermediation in FinTech: Evidence from Online Lending
Published online by Cambridge University Press: 20 June 2023
Abstract
We document the unique structure of the peer-to-peer lending market. Originally designed as decentralized, the market has become highly, but not fully, reintermediated. The platforms’ software now performs essentially all tasks related to loan evaluation, whereas most lenders are passive and automatically fund most applications on offer. Yet unlike banks, and in contrast to theories predicting full reintermediation, the platforms provide detailed loan information, and some active loan pickers coexist with passive investors. We argue that while intermediation attracts unsophisticated passive investors, transparency in the presence of active investors resolves the lending platform’s moral hazard problem inherent in intermediated markets.
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- Research Article
- Information
- Creative Commons
- This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
- Copyright
- © The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank Christoph Bertsch, Jeffrey Busse, Michele Dathan, Craig Doidge, Alex Dyck, Redouane Elkamhi, Rohan Ganduri, Christoph Herpfer, Julapa Jagtiani, Narasimhan Jegadeesh, Michael King, Florian Koch, Victor Lyonnet, Gonzalo Maturana, Alexandra Niessen-Ruenz, Nagpurnanand Prabhala, Boris Vallee, Christina Wang, and Robert Wardrop; seminar participants at Cass Business School, Scheller College of Business, Goizueta Business School, Rotman School of Management, and FED Board; attendees of the CFIC, Australasian Finance and Banking Conference, Philadelphia FED FinTech Conference, CenFIS (Atlanta FED)/CEAR Conference on Financial Stability Implications of New Technology, NFA, FDIC-JFSR Bank Research Conference, FinTech and Financial Risk Management Conference, FinteQC Conference, Showcasing Women in Finance Conference, and Toronto FinTech Conference; and an anonymous referee for helpful comments and suggestions.
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