Lack of Competition in the Financial Market in Israel: The Conflict between the Needs of P2P Lenders and the Platforms’ Intentions

Abstract

Peer-to-peer (P2P) lending began as a kind of sharing economy within the field of finance. Using internet platforms, P2P lending attempts to offer an alternative to traditional financial institutions like banks. However, the P2P sector plays only a minor role in the finance industry in Israel, compared to the traditional banking system that suffers from an oligopoly structure. We conducted two studies in order to investigate this gap, comparing the dual connection between lenders and the platforms. In the first study, we conducted a conjoint analysis to examine the attributes that have higher utility for the lenders, and impact their decision to invest through the P2P platforms. In the second study, we shift the research prism toward the platforms, and examine the factors they use to determine the lending interest rate for loans, other than the borrowers’ financial condition. We found that although lenders wish to decrease their risk and guarantee their investment, P2P companies encourage borrowers, thereby increasing the risk inherit in lending to strangers. This contradiction between the priorities of the lenders and the platforms, may explain why the general public considers P2P lending highly risk, and avoids this financial tool. Based on our results, we offer a number of suggestions to increase the attractiveness of the industry.