An Economic Analysis of Disintermediation on Crowdfunding Platforms

Prosocial crowdfunding platforms can work through direct peer-to-peer (P2P) lending or through intermediaries, incurring different costs to borrowers and lenders. This study investigates the incentives of lenders and borrowers’ and how they would choose between the two types of platforms. We model the intermediary as a profit maximizer who filters projects, provides high quality borrowers with access to the platform, and ensures repayment rate to lenders. Our initial findings suggest that the introduction of direct P2P lending platform enables the intermediary to reduce its interest rate and to raise its screening threshold on the intermediated platform. The P2P lending platform also incentivizes more altruistic lenders to shift to the direct funding platform, which enables riskier borrowers to get funded. These findings suggest that the introduction of disintermediated P2P platform improves social welfare on the prosocial crowdfunding platforms.