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"It originally developed with households that are seeking unsecured loans being financed by other households. That's all it is: crowdsourcing consumer loans," said William Bazley, assistant professor of finance at the University of Kansas.

In his new article, "The Real and Social Effects of Online Lending," Bazley examines the fledgling industry, analyzing data that reveals why this modern method of borrowing is proliferating. He recently won the award for Best Paper on FinTech at the Northern Finance Association conference in Vancouver.

"When traditional credit becomes scarce, such as when banks merge or there's a natural disaster, having access to these markets and loan products moderates some of the decline in new business establishments," Bazley said.

He explains how these loans temper the effects of traditional credit scarcity by supporting small business growth. There are also social welfare implications. When conventional credit markets have frictions—something that prevents a trade from being executed smoothly—economic vitality suffers, and crime increases.

"In communities that can borrow in online peer-to-peer lending markets, the drop in economic growth is less severe. And the jump in crime is also moderated," Bazley said.

The first peer-to-peer lending in the U.S. appeared in 2006. The industry soared when banks refused to issue loans during the financial crisis of 2007-2008. Currently, Lending Club and Prosper are the two most successful of these companies.

As of 2016, they've originated about $100 billion in personal loans. According to a Price Waterhouse Coopers study, it's expected by 2025 these markets will generate about $150 billion in volume per year.

Title		Crowdsourcing Consumer Loans can Bolster Business Growth and Reduce Crime
Date		Sunday October 13 2019, @12:50PM
Author		janrinok
Topic
from the credit-union-'on-a-computer' dept.

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