Underdog mentality, identity discrimination and access to peer-to-peer lending market: Exploring effects of digital authentication

Abstract

Vulnerable social groups are often the recipients of statistical discrimination by financial institutions. They therefor try to access the P2P lending market through voluntary digital authentication, but the digital authentication requirements in P2P lending increase taste-based discrimination against these vulnerable groups. Empirical results in this study confirm the existence of education-based and gender-based statistical discrimination even in the Chinese P2P lending market. Digital authentication might alleviate statistical discrimination and increase financial inclusion for these vulnerable groups, but this authentication might also lead to members of vulnerable groups having to pay higher interest rates when seeking loans. The “underdog mentality” concept explains why vulnerable groups voluntarily accept digital authentication, and why they tolerate having to pay higher interest rates for loans P2P they receive.