Peer-to-Peer Lending Platforms In China

P2P (Peer-to-Peer) Lending is a new alternative of financing which matches borrowers and lenders directly through the third-party Internet Platforms. It has been eight years since the P2P lending pattern first came to China. With number and scale of platforms increasing significantly, there are also more and more problems occur in this industry, bad debt and even break down of platforms etc. This paper is composed of two parts. Firstly, we talk about driven factor for the survival and development of the platform by comparing 259 Chinese P2P platforms, based on the analysis of trading data of these platforms. Secondly, we use the data from one of China’s leading P2P platforms, Renrendai.com, to analyze the role of different kind of information, especially the linguistic features of descriptive text, in P2P lending markets.First, we attempt to answer two questions:1. to what extent could the individual characteristics of the P2P platform explain the collapse of a platform? 2. To what extent could these characteristics the market share of a platform? Based on daily transaction level data from 259 platforms in China, we find that P2P platform which has the 100% principal and interest guarantee for investor, trading volume was significantly higher than that of other platforms, but they are also more prone to problems. Platforms with different investor protection methods show different volume performance, but there is no significant difference between the probability of the occurrence of problem. Platforms with better reputation, have higher market share, as well as lower probability of occurrence of the problem.Second, we attempts to answer whether text information will help alleviate the information asymmetry, and whether investors’ interpretation of the text information is rational. We use the crawler software to obtain the 75659 loan applications for the loan applications from October 16,2010 to September 5,2013. The study found that more specific, more positive emotion, and more readable texts, are more favored by investors. The correlation between the loan description text and the success rate of loan is stronger than the correlation with the default risk. Investors have a basic rational understanding of the language features.Finally, based on the research results based on platform level and transaction level data, this paper provides a targeted policy recommendations, in order to promote the development of P2P industry in China.