The Role of Marketplace Lending in Credit Markets: Evidence from Bank Mergers

We develop a model of competition between banks and a marketplace lender to motivate empirical tests using local market data on U.S. banks and the largest marketplace lending platform. Employing mergers of large, multimarket banks as an exogenous credit supply shock, we find that marketplace lending absorbs unmet demand for consumer credit following a decline in the availability of bank credit. Merger-induced bank branch closings lead to an increase in marketplace loan requests and loan acceptance rates, particularly for debt consolidation loans to lower-risk consumers. We also find that marketplace lending mitigates credit distress in local economies affected by mergers.

Automated summary

This paper develops a model to study the competition between banks and marketplace lenders using local market data in the U.S. Banks and the largest marketplace lending platform are analyzed. The results show that marketplace lending can absorb unmet consumer credit demand when bank credit availability declines. It is also found that marketplace lending helps mitigate credit distress caused by bank mergers in local economies.