DP14740 The Value of "New" and "Old" Intermediation in Online Debt Crowdfunding

Author(s): Fabio Braggion, Alberto Manconi, Nicola Pavanini, Haikun Zhu
Publication Date: May 2020
Date Revised: December 2020
Keyword(s): Chinese financial system, Marketplace credit, structural estimation
JEL(s): D14, D61, G21, G51, L21
Programme Areas: Financial Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14740

We study the welfare effects of the transition of online debt crowdfunding from the older "peer-to-peer" model to the "marketplace" model, where the crowdfunding platform sells diversified loan portfolios to investor. We develop an equilibrium model of debt crowdfunding capturing platform design (peer-to-peer or marketplace) and lender preferences over loan and portfolio product characteristics, and we estimate it on a novel database on credit at a large online platform based in China. Moving from the peer-to-peer to the marketplace model raises lender surplus, platform profits, and credit provision. At the same time, reducing lender exposure to liquidity risk can be beneficial. A counterfactual scenario where the platform resembles a bank by bearing liquidity risk has similar welfare properties as the marketplace model when liquidity is high, but results in larger lender surplus and credit provision, and only moderately lower platform profits, when liquidity is low.