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Title: The business models and economics of peer-to-peer lending
Authors: Milne, Alistair
Parboteeah, Paul
Keywords: Market place lending
Financial regulation
Credit risk
Credit markets
Liquidity risk
Standardisation
Digital economy
Banking competition
Credit availability
Small business lending
Consumer credit
Issue Date: 2016
Publisher: © European Credit Research Institute
Citation: MILNE, A. and PARBOTEEAH, P., 2016. The business models and economics of peer-to-peer lending. ECRI Research Report No 17, May 2016.
Abstract: This paper reviews peer-to-peer (P2P) lending, its development in the UK and other countries, and assesses the business and economic policy issues surrounding this new form of intermediation. P2P platform technology allows direct matching of borrowers’ and lenders’ diversification over a large number of borrowers without the loans having to be held on an intermediary balance sheet. P2P lending has developed rapidly in both the US and the UK, but it still represents a small fraction, less than 1%, of the stock of bank lending. In the UK – but not elsewhere – it is an important source of loans for smaller companies. We argue that P2P lending is fundamentally complementary to, and not competitive with, conventional banking. We therefore expect banks to adapt to the emergence of P2P lending, either by cooperating closely with third-party P2P lending platforms or offering their own proprietary platforms. We also argue that the full development of the sector requires much further work addressing the risks and business and regulatory issues in P2P lending, including risk communication, orderly resolution of platform failure, control of liquidity risks and minimisation of fraud, security and operational risks. This will depend on developing reliable business processes, the promotion to the full extent possible of transparency and standardisation and appropriate regulation that serves the needs of customers.
Description: This is a research report.
Sponsor: NEMODE network
Version: Published
URI: https://dspace.lboro.ac.uk/2134/24276
Publisher Link: https://www.ceps.eu/system/files/ECRI%20RR17%20P2P%20Lending.pdf
ISBN: 978-94-6138-526-0
Appears in Collections:Research Reports (Business School)

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