Abstract

We analyze the equilibrium in the credit market when a bank and a lending platform 
compete to offer credit to borrowers. The platform does not manage deposit accounts,
but acts as an intermediary between the borrower and the investor, offering a risky
contract such that the investor is only reimbursed if the borrower is successful. We first
characterize the optimal prices proposed by the platform, depending on the two-sided
structure of the market. Then, we study the impact of bank-platform competition on
the investor's incentives to fund platform loans and on borrower repayments. We show
that the platform business model of financial intermediation may generate unexpected
effects in the credit market. The investor participation in the platform may be reduced
when the platform attracts borrowers of better quality. In addition, when the bank
lowers borrower repayments, the platform may react by increasing them. The welfare
effects of platform entry are not trivial, because it may reduce the average expected
surplus of borrowers. 

Joint work with Marianne Verdier (Université Paris 2 Panthéon-Assas)

More information

Location : 
Room 1Z74
Building North
CEPS, ENS Paris-Saclay
4 avenue des Sciences 91200 Gif-sur-Yvette

Zoom link