Interdependence between Online Peer-to-Peer Lending and Cryptocurrency Markets and Its Effects on Financial Inclusion

Forthcoming at Production and Operations Management

32 Pages Posted: 16 Oct 2018 Last revised: 24 Apr 2023

See all articles by Sunghun Chung

Sunghun Chung

George Washington University - School of Business

Keongtae Kim

The Chinese University of Hong Kong

Chul Ho Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Wonseok Oh

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: January 09, 2023

Abstract

Online peer-to-peer (P2P) lending has emerged as an innovative financial technology (FinTech) platform that renders financial services that are potentially more inclusive and affordable than those offered by traditional financial institutions. A similar purpose is served by cryptocurrency markets, where transaction costs are reduced and financial accessibility is improved based on disruptive technologies such as blockchain and distributed ledgers. Despite these developments, however, in the operations management literature limited attention has been devoted to the contribution of online P2P lending to the promotion of financial inclusion (i.e., the availability and usage of financial services for all groups of people) and its dynamic interplay with cryptocurrency markets. The rise of cryptocurrency markets affects the composition and activity of borrowers and investors in P2P lending markets and hence the capacity of the latter to support financial inclusion, leading to an operations management challenge in online P2P lending. We examine how cryptocurrency markets influence P2P lending markets’ democratization of access to financial services, particularly P2P borrowing. To investigate these effects in depth, we develop a simple theoretical model to derive testable propositions, which are then empirically validated on the basis of unique datasets.We find that the growth in cryptocurrency markets is associated with increased loan requests and larger loan amounts in P2P markets, especially from borrowers who maintain good credit ratings, possess technical knowledge about cryptocurrencies, and intend to borrow for investment purposes. Our results suggest that cryptocurrency markets bring economic gains to the P2P lending market, at least in the short term. Nonetheless, the transfer of funds from P2P lending to cryptocurrency markets, particularly by highly creditworthy and tech-savvy investors, may provoke increased inequality in access to P2P lending markets. By scrutinizing the interdependence between two representative FinTech markets we uncover important operations management implications for theory and practice regarding the healthy growth and effective governance of crowdfunding platforms and the corresponding sustainability of their role in upholding financial inclusion.

Keywords: financial inclusion; P2P lending; cryptocurrency; crowdfunding; FinTech; platforms

JEL Classification: G10, M15, M21, G11

Suggested Citation

Chung, Sunghun and Kim, Keongtae and Lee, Chul Ho and Oh, Wonseok, Interdependence between Online Peer-to-Peer Lending and Cryptocurrency Markets and Its Effects on Financial Inclusion (January 09, 2023). Forthcoming at Production and Operations Management , Available at SSRN: https://ssrn.com/abstract=3254091 or http://dx.doi.org/10.2139/ssrn.3254091

Sunghun Chung (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Keongtae Kim

The Chinese University of Hong Kong ( email )

908 Cheng Yu Tung Building, Chinese Univ of HK
Shatin, 11111
Hong Kong
39439284 (Phone)

Chul Ho Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

291 Daehak-ro, Yuseong-gu
Daejeon, 34141
Korea, Republic of (South Korea)

Wonseok Oh

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

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