Bank-platform competition in the credit market

Sara Biancini and Marianne Verdier

International Journal of Industrial Organization, 2023, vol. 91, issue C

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 investor, offering a risky contract such that the investor is only reimbursed if the borrower is successful. We show that the platform business model of financial intermediation may generate unexpected effects in the credit market. In particular, investor participation in the platform sometimes decreases when the platform attracts better-quality borrowers. When it competes with the platform, depending on the respective distributions of borrower and investor types, the bank may expand the supply of credit to low-quality borrowers, or restrict it to high-quality borrowers. Bank-platform competition expands the total supply of credit, but has an ambiguous impact on borrower surplus, because some borrowers may have higher repayments.

Keywords: Bank; Lending platform; Credit market; Credit rationing (search for similar items in EconPapers)
JEL-codes: G2 L1 L5 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:91:y:2023:i:c:s016771872300098x

DOI: 10.1016/j.ijindorg.2023.103029

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