PEER-TO-PEER CROWDFUNDING: INFORMATION AND THE POTENTIAL FOR DISRUPTION IN CONSUMER LENDING

Adair Morse

January 2015

ABSTRACT
Can peer-to-peer lending (P2P) crowdfunding disintermediate and mitigate information frictions in lending such that choices and outcomes for at least some borrowers and investors are improved? I offer a framing of issues and survey the nascent literature on P2P. On the investor side, P2P disintermediates an asset class of consumer loans, and investors seem to capture some rents associated with the removal of the cost of that financial intermediation. Risk and portfolio choice questions linger prior to any inference. On the borrower side, evidence suggests that proximate knowledge (direct or inferred) unearths soft information, and by implication, P2P should be able to offer pricing and/or access benefits to potential borrowers. However, social connections require costly certification (skin in the game) to inform credit risk. Early research suggests an ever-increasing scope for use of Big Data and incentivized re-intermediation of underwriting. I ask many more questions than current research can answer, hoping to motivate future research.