Online P2P Lending: Factors, Behaviors, and Mechanisms

Platform

Online P2P platforms are regarded as an innovation of financial market. There are some differences between online platforms and traditional financial institutions. Traditional financial institutions are involved in the credit process and entail some degree of default risks, while online platforms disconnect themselves from the lending process and the risks they bear are from the platform operation. Generally, lenders in traditional context have no knowledge of the borrowers, whereas lenders in online platforms can browse borrowers’ information and have the determination right. Revenue source of traditional institutions are mainly financial spreads, while online platforms charge service fee as an intermediary.

Online platforms are also regarded as part of the crowd funding movement that uses the internet to rally crowd for collective funding (Burtch, Ghose et al. 2013; Zvilichovsky, Inbar et al. 2013). However, P2P lending and crowdfunding are essentially different in purpose and funding model. The primary purpose of P2P loans is for debt consolidation and credit card refinancing (Zhu, Dholakia et al. 2012). Regarding to the funding model, P2P lending platforms all adopt all-or-nothing funding model, that is, the funds are returned to the funder unless the funding goal is reached (Gerber, Hui et al. 2012). Some crowdfunding platforms use Keep-what-you-raise model, such as RocketHub.com and IndieGoGo.com.