Abstract
To explore the determinants of peer-to-peer (P2P) lending expansion, this study examines factors that impact P2P lending using a sample of 62 economies over the period 2015–2017. We investigate the effects of financial development and financial literacy on the expansion of P2P lending. The level of development of financial institutions is assessed by access, efficiency, and depth. We find that financial institutions’ efficiency, financial literacy, and lower branch and ATM penetration are positively related with the expansion of P2P lending. This finding suggests that P2P lending can fill funding gaps in economies where traditional financial institutions may be less available, and thus promote financial inclusion. We also find that better information technology infrastructure and high new business density are positively associated with the expansion of P2P lending, suggesting that physical infrastructure is an essential prerequisite for it, while this is more likely to happen in dynamic business environments.
Highlights
Online peer-to-peer (P2P) lending—a financial technology service known as crowdlending or debt-based crowdfunding—is a financial service in which lenders and borrowers transact directly without the intermediation of traditional financial institutions
We investigated factors determining the expansion of P2P lending across economies using data on P2P loan volumes per capita for 2015–2017 for 62 economies
We use a set of financial development indicators—financial access, efficiency, depth, and financial literacy
Summary
Online peer-to-peer (P2P) lending—a financial technology (fintech) service known as crowdlending or debt-based crowdfunding—is a financial service in which lenders and borrowers transact directly without the intermediation of traditional financial institutions. This paper investigates how existing financial environments, in particular financial institutional development, and financial literacy can account for observed cross-country differences in the expansion of P2P lending. Ayadi et al (2013) investigate the relationship between financial development and economic growth They use new financial sector measures for the quantity (depth) and the quality (efficiency) of the banking sector. Conditioning on the fact that higher efficiency represents high competition and lower barriers to entry, higher efficiency may have a positive impact on the adoption of P2P lending This leads to our second question: Does P2P lending expand in economies with more or less efficient financial institutions and high levels of financial depth?.
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