BuR -- Business Research
Official Open Access Journal of VHB
Verband der Hochschullehrer für Betriebswirtschaft e.V.
Volume 2 | Issue 1 | May 2009 | 39--65
Emergence of Financial Intermediaries in
Electronic Markets: The Case of Online P2P
Lending
Sven C. Berger, Goethe University & E-Finance Lab Frankfurt, E-mail: sberger@wiwi.uni-frankfurt.de
Fabian Gleisner, Goethe University & E-Finance Lab Frankfurt, E-mail: gleisner@wiwi.uni-frankfurt.de
Abstract
We analyze the role of intermediaries in electronic markets using detailed data of more than 14,000
originated loans on an electronic P2P (peer-to-peer) lending platform. In such an electronic credit
market, lenders bid to supply a private loan. Screening of potential borrowers and the monitoring of
loan repayment can be delegated to designated group leaders. We find that these market participants
act as financial intermediaries and significantly improve borrowers’ credit conditions by reducing
information asymmetries, predominantly for borrowers with less attractive risk characteristics. Our
findings may be surprising given the replacement of a bank by an electronic marketplace.
Keywords: Asymmetric information, intermediation, social lending, electronic markets
Manuscript received July 7, 2008, accepted by Christian Schlag (Finance) March 5, 2009.
1 Introduction
The evolution of information technology in recent
years has led to the development of electronicmar-
ketplaces where traditional intermediaries may be
less important or even redundant for the economic
interaction of market participants (Benjamin and
Wigand 1995, Evans and Wurster 1997, Malone,
Yates, and Benjamin 1987). Within the financial
services industry, the debate about disintermedi-
ation and the future relevance of financial inter-
mediaries (Allen and Santomero 2001, Nellis, Mc-
Caffery, and Hutchinson 2000, Schmidt, Hack-
ethal, and Tyrell 1999) is fueled by the increasing
role of electronic lendingmarkets (P2P Lending or
Social Lending) where an electronic marketplace
replaces a bank as the tra