The Performance of Marketplace Lenders: Evidence from Lending Club Payment Data
2018
Direct financingof consumer credit by individual investors or non-bank institutions through an implementation of marketplace lending is a relatively new phenomenon in financial markets. The emergence of online platforms has made this type of financial intermediation widely available. This paper analyzes the performance of marketplace lending using proprietary cash flow data for each individual
loanfrom the largest platform, Lending Club. While individual
loancharacteristics would be important for amateur investors holding a few
loans, sophisticated lenders, including
institutional investors, usually form broad portfolios to benefit from diversification. We find high risk-adjusted performance of approximately 40
basis pointsper month for these basic
loanportfolios. This abnormal performance indicates that Lending Club, and similar marketplace lenders, are likely to attract capital to finance a growing share of the consumer credit market. In the absence of a competitive response from traditional credit providers, these
loanslower costs to the ultimate borrowers and increase returns for the ultimate lenders.
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