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Online Peer-to-Peer (P2P) lending allows individuals to lend and borrow directly among each other without the mediation of a creditor bank institution (Greiner & Wang, 2009; Lin, Prabhala, & Viswanathan, 2013). The first P2P lending company to launch was Zopa in UK in February 2005. Today, many online P2P lending marketplaces emerge worldwide, such as Prosper in the U.S., Zopa in UK and Japan, CommunityLend in Canada, and PPDai in China. P2P lending marketplaces act as brokerages and provide a venue where lenders and borrowers can connect with each other online directly. Usually, the transactions start when a borrower creates and publishes a loan request (called listing) that describes the purpose and conditions of the desired loan (e.g., debt consolidation, business use), the requested amount, and a maximum interest rate the individual is willing to pay. Lenders on the marketplace can search for listings and then bid on listings. Listings receiving enough bids to meet the requested loan amount become loans.
Like other online businesses, a fundamental problem in online P2P lending is information asymmetry between the lenders and the borrowers, the lenders have less information about borrowers’ capabilities and willingness to pay back than borrowers do (Greiner & Wang, 2009; Mishra, Heide, & Cort, 1998; Pavlou, Liang, & Xue, 2007). Consequently, there are considerable uncertainties regarding borrowers’ intentions, trustworthiness, and behavioral patterns in online P2P lending. How to mitigate the asymmetric information thus becomes a key issue for the online P2P lending. Like traditional bank loan, many P2P lending marketplaces first use borrowers’ credit information as a measure. For example, only people with a Fair Isaac Credit Organization (FICO) score above 520 are allowed to borrow in Prosper.com. Later, researchers found that some “soft” information about credit quality beyond credit scores and standard ratios was critical to successful lending outcomes in P2P lending marketplaces (Lin, et al., 2013). Social capital was highlighted as important “soft” information in P2P lending marketplaces because an individual’s network of relationships can provide a valuable resource for lending. For example, Prosper allows its members to connect with each other by creating networks of friends and endorsing each other; Lending Club lenders can see whether s/he and the borrower have a shared background; PPDai develops forums for their members to share their experiences, stories, and advice.
Online P2P lending originates from Western countries, thus prior literature has largely been limited to the Western context. However, as this innovation increasingly transcends national boundaries, national differences become a critical research issue. Prior literature has pointed out that attempts to introduce western theories and practices into other cultures may not be always successful. People from different cultures have different ways of doing business. National differences are important for the diffusion and use of different technologies, such as computer-mediated communication (Tan, et al., 1998), ERP (Sheu, Chae & Yang, 2004). Therefore, national differences could be important for P2P lending market too. Specifically, we choose the U.S. and China as our comparison objects since both countries have prosperous online P2P marketplaces and their people espouses significant different national cultures (Hofstede, 1980) as well as different infrastructures, laws and regulations. For example, Prosper’s borrower must be a U.S. citizen over 18 years of age with a valid credit scores. In contrast, borrowers do not have such a valid credit score in China.