The paper analyses major P2P(peer-to-peer) lending markets to not only understand similarities and differences between P2P lending platform and bank with respect to financial intermediation but also find the relationship between them in loans market. Also, the paper discusses the benefits of P2P lending platforms’ emergence and growth and the potential risks to the financial industries and markets, along with comparing recent developments in regulation and supervision on P2P lending platforms across economies such as US, UK, China and Korea.
In result, the paper found as follow: the P2P lending markets have been growing in rapid speed. However, the markets are expected to be more likely to be vulnerable to external shocks as long as they become concentrated by only a few of platforms. Also, P2P lending platforms may play a role of providing financial intermediation between borrowers and investors in more effective ways than banks, resulting in competing with banks in the same segment of loans market and further complementing banks’ financial intermediation by matching investors to a broader range of creidt risk. But platform failures have kept filed and even large-sized platforms have shown in deficit.
The findings of the paper suggest that P2P lending platforms may partly substitute banks’ role of financial intermediation if they are adequately regulated and supervised to improve their compatability of screening and monitoring borrowers’ credit risk, to control the problem of their market hazard, and to prevent conflicts of interest between them and investors. Also, they need to be approved or admitted as a financial intermediary by regulators to encourage their capabilities of essentially and effectively facilitating credit transactions or risk transfer between borrowers and investors. In particular, it is required to strengthen measures of protecting investors as well as borrowers in P2P lending markets. For this regard, it is desirable that P2P lending should be classified as a type of crowdfunding or that payment-dependent securities issued by platforms or pass-through lenders should be admitted as investment contract securities in law, such as in US and UK. These measures are expected to enhance P2P lending platform operation transparency, to require disclosure and explanation on P2P loans to both sides of borrowers & investors, and furthter to help mitigate platform failures and systemic risks, by inducing P2P lending markets to be disciplined by market mechanism.