JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. FosterSchool of Business, University of Washington. This is an Open Access article, distributed under the termsof the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permitsunrestricted re-use, distribution and reproduction, provided the original article is properly cited.doi:10.1017/S0022109023000789Reintermediation in FinTech: Evidence fromOnline LendingTetyana BalyukEmory University Goizueta Business Schooltetyana.balyuk@emory.edu (corresponding author)Sergei DavydenkoUniversity of Toronto Rotman School of Managementdavydenko@rotman.utoronto.caAbstractWe document the unique structure of the peer-to-peer lending market. Originally designed asdecentralized, the market has become highly, but not fully, reintermediated. The platforms’software now performs essentially all tasks related to loan evaluation, whereas most lendersare passive and automatically fund most applications on offer. Yet unlike banks, and incontrast to theories predicting full reintermediation, the platforms provide detailed loaninformation, and some active loan pickers coexist with passive investors. We argue thatwhile intermediation attracts unsophisticated passive investors, transparency in the presenceof active investors resolves the lending platform’s moral hazard problem inherent in inter-mediated markets.I.IntroductionOnline platforms such as Uber, Airbnb, and eBay bring together buyers andsellers of goods and services over the Internet, reducing search costs in a multitudeof very different markets. The rise of financial technology (FinTech) has sometimesbeen predicted to result in similar developments in the financial sector, allowingproviders and users of finance to interact directly without the involvement of banksand other financial intermediaries.1 Inspired by these ideas, peer-to-peer (P2P)We thank Christoph Bertsch, Jeffrey Busse, Michele Dathan, Craig Doidge, Alex Dyck, RedouaneElkamhi, Rohan Ganduri, Christoph Herpfer, Julapa Jagtiani, Narasimhan Jegadeesh, Michael King,Florian Koch, Victor Lyonnet, Gonzalo Maturana, Alexandra Niessen-Ruenz, Nagpurnanand Prabhala,Boris Vallee, Christina Wang, and Robert Wardrop; seminar participants at Cass Business School,Scheller College of Business, Goizueta Business School, Rotman School of Management, and FEDBoard; attendees of the CFIC, Australasian Finance and Banking Conference, Philadelphia FEDFinTech Conference, CenFIS (Atlanta FED)/CEAR Conference on Financial Stability Implications ofNew Technology, NFA, FDIC-JFSR Bank Research Conference, FinTech and Financial Risk Manage-ment Conference, FinteQC Conference, Showcasing Women in Finance Conference, and TorontoFinTech Conference; and an anonymous referee for helpful comments and suggestions.1See, for example, “Role of Banks Recedes in Wake of Crisis” (Financial Times,...
