Lenders and Borrowers’ Strategies in Online Peer-to-peer Lending Market: an Empirical Analysis of Ppdai.com

We investigate key factors affecting lenders’ bidding strategies using three measurements for the popularity of loans: funding success, number of bids, and funding time. Also, we analyze borrowers’ strategy in three groups according to the level of their expertise of online Peer-to-Peer lending: novice borrowers, pure borrowers, and mixed borrowers (as both borrower and lender). We use data from PPDai and find unanimous support for the interest rate, but partial evidence for the loan amount and the loan period. Particularly, we find that a larger loan amount could increase the probability of funding and attract more lenders. This implies that different lenders’ strategies exist in the Chinese online P2P market where reliable individual credit information is unavailable. Information related to credit shows significant impact on all three measurements of the loan popularity. For borrowers, we find that different types of borrowers emphasize different components when designing a loan: mixed borrowers seem to put more weight on loan period while pure borrowers consider interest rate and loan amount more. Borrowers who have more expertise tend to propose a loan at a relatively lower cost. Our findings also suggest that Chinese borrowers, especially mixed borrowers, tend to utilize higher credibility to seek larger loans instead of lowering the cost of a loan.