Peer-to-peer lending: Shift of pricing regime and changes in risk sensitivity

Jiakai Chen, Wei Huang and Xinruo Wang

Journal of Banking & Finance, 2025, vol. 176, issue C

Abstract: We investigate the changes in risk sensitivities of interest rates following a shift in Prosper.com's pricing mechanism from auctions to posted prices. We find that the shift leads to reduced sensitivities of loan pricing to credit risk. Furthermore, this change results in higher profits for the platform while investors receive less compensation for the credit risk they undertake. Additionally, borrowers encounter less credit rationing. Analyses of repeat borrowers under both pricing regimes and tests with data under Prosper's upgraded posted prices confirm these findings. We argue that less risk-based pricing results from the incentives of the lending platform.

Keywords: Risk-based pricing; Peer-to-peer lending; Credit risk; Pricing regimes; Auctions; Posted prices (search for similar items in EconPapers)
JEL-codes: D14 G13 G23 G51 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000792

DOI: 10.1016/j.jbankfin.2025.107459

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