Consumer preferences towards P2P platforms in India

Abstract

Peer-to-peer lending is a mode of credit where one individual option loans directly from another individual. This aims to remove the intermediaries which is often financial institution like a bank. The borrower often does not satisfy the requirements for the bank lending and thereby has to look for other sources of borrowing. The borrowers do not only include individuals but may also include businesses and other legal persons who require short-term funding. For the lender, the higher interest rate offered by the borrower is the motivation to lend. The investors or investors are the individuals who want to get a better return compared to a savings bank account or fixed deposit (Investopedia, 2022). P2P lending can also be looked like a form of crowdfunding to raise loans. RBI defines P2P Lending as the use of online platform to match the borrower with the lender to provide unsecured loans (RBI, 2018). The proliferation of digitization in the borrowing industry has led to advancement of P2P lending across geographies. So, the P2P companies remove the search cost for the borrower and lender in finding each other. Most of the websites specify the interest rate and the purpose of the loan. Based on the information and the risk-taking ability of the lender, they make an investment. Traditionally, the default rates in P2P lending are much higher than the savings or fixed account deposit. Therefore, the higher interest rate offered by the borrower compensates the lender for the additional risk taken by them.