Interest rate drivers in the peer-to-business lending market
authors
keywords
- Crowdlending
- Fintech
- Interest rate
- Risk assessment
- Lending decision
- Market competition
document type
COMMabstract
Crowdlending is one of multiple sources of alternative financing that is gaining importance. Most existing research focuses on peer-to-peer platforms (P2P), but more needs to be learned about those dedicated to financing firms (P2B- peer-to-business platforms). This study ex- plores the dynamics driving the interest rates, which are both a cost for the entrepreneur (lower is better) and a return for the investors (higher is better). This rate is also usually used as a proxy for the default risk when it is assessed only by the lender. However, intermediaries can manipulate it to create a two-sided market between offer and demand. We collected data from 16 French lending platforms. Most of them set the interest rate before offering projects to investors (the crowd), but a few let the crowd set the interest rate through bidding mecha- nisms. Our results indicate that 1) crowdlending platforms are likely to set lower overall inter- est rates than the crowd, 2) the reasonings of platforms and the crowd differ when assessing credit risk, and 3) Platforms' competition and attractiveness issues are of significant impor- tance when determining interest rates.