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Reintermediation in FinTech: Evidence from Online Lending

Published online by Cambridge University Press:  20 June 2023

Tetyana Balyuk Open the ORCID record for Tetyana Balyuk [Opens in a new window]  and
Sergei Davydenko
Tetyana Balyuk*
Affiliation:
Emory University Goizueta Business School
Sergei Davydenko
Affiliation:
University of Toronto Rotman School of Management davydenko@rotman.utoronto.ca
*
tetyana.balyuk@emory.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 5 , August 2024 , pp. 1997 - 2037
Creative Commons
Creative Common License - CCCreative Common License - BY
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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