Competition for Lending in the Internet Era: The Case of Peer-to-Peer Lending Marketplaces in the USA

Abstract

Peer-to-peer lending marketplaces are a phenomenon in great expansion in the USA and Europe. These Online platforms build an example of two-sided market as they try to attract and match lenders and borrowers, while facing the trade-off between increasing the volume of intermediated transactions and minimizing the risks. In this article, we provide a descriptive analysis on the competitive strategies used by these platforms, in a two-sided market environment, and we try to find whether these two platforms differentiate from each other or from banks. To provide evidence on this comparison, we exploit data obtained by Prosper and LendingClub websites, the two leading peer-to-peer lending platforms in the USA, for the years 2006-2013 in the case of Prosper, while for LendingClub they are for the years 2007 until 2014. We deduce that these platforms are substitutes with one another and that they are frontally competing.

Keywords: peer-to-peer lending; two-sided markets; crowdfunding; bank competition; non-banks; platform competition; Internet banking

JEL Classification: E42; G21; L96