Reputation in lending marketplaces

For marketplaces to be successful, generating trust between the participants is key. We know this intuitively, for any transaction to occur there has to be a modicum of trust! An interesting way to build trust is via signaling “reputation” which is doubly important in lending marketplaces as there is a required level of anonymity between the participants.  As a product manager, always think like the user :). What are the key concerns of the users (Borrowers and Investors) in a lending marketplace?

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Building a better mousetrap – Peer to Peer Lending edition

Interesting paper over at the NBER about peer to peer lending. I highly recommend reading the entire paper.

The TLDR version:

  • A market set Interest rate is better predictor of default over credit score. This is primary because credit scores are backward looking.
  • For lower quality borrowers, soft/non standard information is relatively more important (in this case for outcome=Fraction repaid) over credit score (this was very counter intuitive  to me) Continue reading