The next Economics Seminar of Paris-Saclay will take place on Thursday, January 19 from 12h15 to 13h15. Sara Biancini (CY Cergy Paris U.) will present Bank-Platform Competition in the Credit Market (joint with Marianne Verdier ).
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 the investor, offering a risky contract such that the investor is only reimbursed if the borrower is successful. We first characterize the optimal prices proposed by the platform, depending on the two-sided structure of the market. Then, we study the impact of bank-platform competition on the investor’s incentives to fund platform loans and on borrower repayments. We show that the platform business model of financial intermediation may generate unexpected effects in the credit market. The investor participation in the platform may be reduced when the platform attracts borrowers of better quality. In addition, when the bank lowers borrower repayments, the platform may react by increasing them. The welfare effects of platform entry are not trivial, because it may reduce the average expected surplus of borrowers.