Trust in peer-to-peer (P2P) lending platforms in Malaysia: understanding the determinants from retail investors' perspectives

Abstract

PurposeDespite a large stake of investment by retail investors and a growing number of peer-to-peer (P2P) lending platforms coupled with the initiation of secondary market and strong regulatory framework, less is known what leads investors to trust in P2P (TP2P) lending platforms in a multi-ethnic country, Malaysia. This study aims to investigate the effects of individual characteristics (gender, age, ethnicity, education and income), social influence of P2P (SIP2P) lending and privacy of P2P (PP2P) lending on the trust in emerging P2P platforms.Design/methodology/approachA cross-sectional survey was conducted to collect the data from retail investors in Malaysia. A variance-based partial least squares-structural equation modeling (PLS-SEM) model was applied to examine the significant predictors of TP2P lending platforms.FindingsThe results show that while investors' income is positively related to TP2P lending platforms, younger investors are less likely to have trust on P2P lending platforms. PP2P lending platforms increases retail investors' trust toward P2P platforms in Malaysia.Practical implicationsP2P service providers are suggested to give especial attention to investors' specific characteristics to develop trust and attract investors to the platforms. Service providers need to ensure the privacy of potential investors' personal and confidential data to build investors' trust.Originality/valueThis is the first study to assess retail investors' trust toward online P2P lending platforms in Malaysia, where this alternative financing platform gradually gaining popularity.