Addressing Information Asymmetries in Online Peer-to-Peer Lending

Abstract

Digital technologies are transforming how small businesses access finance and from whom. This chapter explores online peer-to-peer (P2P) lending, a form of crowdfunding that connects borrowers and lenders. Information asymmetry is a key issue in online peer-to-peer lending marketplaces that can result in moral hazard or adverse selection, and ultimately impact the viability and success of individual platforms. Both online P2P lending platforms and lenders seek to minimise the impact of information asymmetries through a variety of mechanisms. This chapter discusses the structure of online P2P lending platforms and reviews how the disclosure of hard and soft information, and herding can reduce information asymmetries. The chapter concludes with a discussion of further avenues for research.