Distrust in Banks and Fintech Participation: The Case of Peer-to-Peer Lending

53 Pages Posted: 16 Feb 2018 Last revised: 15 Sep 2020

See all articles by Ed Saiedi

Ed Saiedi

Royal Institute of Technology (KTH), Department of Industrial Economics and Management (INDEK); Swedish House of Finance; Universidad Politécnica de Madrid

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation; Danish Finance Institute; Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies

Anders Broström

Royal Institute of Technology (KTH); Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies

Kourosh Shafi

California State University, East Bay

Date Written: February 15, 2018

Abstract

What has boosted crowdfunding’s growth? In the case of peer-to-peer (P2P) lending, we highlight
the role of consumers’ distrust in banks. We offer evidence that distrust in banks likely triggers
individuals to supply funding toward crowdfunding and away from bank deposits. We highlight
that a distrust mindset promotes questioning default choices and considering alternatives, and
fosters comparisons focusing on dissimilarities. Our findings suggest US states whose residents
express greater distrust in banks are more likely to fund P2P loans and, conditional on funding,
lend higher amounts. This relationship is more pronounced when funding small loans or borrowers
with less banking access.

Keywords: Peer-to-Peer Lending; Crowdfunding; Distrust in Banks and Financial Institutions; FinTech.

JEL Classification: G20,

Suggested Citation

Saiedi, Ed and Mohammadi, Ali and Broström, Anders and Shafi, Kourosh, Distrust in Banks and Fintech Participation: The Case of Peer-to-Peer Lending (February 15, 2018). Forthcoming at Entrepreneurship Theory and Practice; Swedish House of Finance Research Paper No. 18-6, Available at SSRN: https://ssrn.com/abstract=3124301 or http://dx.doi.org/10.2139/ssrn.3124301

Ed Saiedi (Contact Author)

Royal Institute of Technology (KTH), Department of Industrial Economics and Management (INDEK) ( email )

Stockholm
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Universidad Politécnica de Madrid ( email )

Calle Ramiro de Maeztu, 7
Madrid, 28040
Spain

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

Danish Finance Institute ( email )

Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies ( email )

Drottning Kristinas väg 30
Stockholm, SE-100 44
Sweden

Anders Broström

Royal Institute of Technology (KTH) ( email )

Lindstedtsvägen 30-100 44
Stockholm, SE-100 44
Sweden

Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies ( email )

Drottning Kristinas väg 30
Stockholm, SE-100 44
Sweden

Kourosh Shafi

California State University, East Bay ( email )

25800 Carlos Bee Boulevard
Hayward, CA California 94542
United States

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