Peer-to-Peer lending platform: from substitution to complementary for rural banks
Abstract
This study aims to examine the impact of the growth of peer-to-peer (P2P) lending on the growth of rural bank lending. Further, this study investigates the outcome of the partnership agreement between the Rural Bank Association and Financial Technology (FinTech) Association in the last quarter of 2017 on the effect of P2P lending on rural bank lending by analyzing the impact separately in 2018 and 2019. The publicly available data from the Financial Services Authority and Bank of Indonesia were examined using panel data regression. The results show that P2P lending’s growth is a substitute for the growth of the rural bank loan in 2018. However, the partnership between the Rural Bank Association and FinTech Association changed the effect of substitution into complementary in 2019. Moreover, the impact of P2P lending was more prominent in provinces with a higher number of rural banks and regions with lower economic growth. The restricted number of publicly available data becomes the limitation of this study to obtain the best results.
Keyword : banking, rural bank, FinTech, P2P lending, substitution, complementary
How to Cite
Kohardinata, C., Suhardianto, N., & Tjahjadi, B. (2020). Peer-to-Peer lending platform: from substitution to complementary for rural banks. Business: Theory and Practice, 21(2), 713-722. https://doi.org/10.3846/btp.2020.12606
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Hoechle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal, 7(3), 281–312. https://doi.org/10.1177/1536867X0700700301
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Lee, I., & Shin, Y. J. (2018). Fintech: Ecosystem, business models, investment decisions, and challenges. Business Horizons, 61(1), 35–46. https://doi.org/10.1016/j.bushor.2017.09.003
Levin, J., & Milgrom, P. (2004). Consumer theory. https://web.stanford.edu/~jdlevin/Econ 202/Consumer Theory.pdf
Li, Y., Spigt, R., & Swinkels, L. (2017). The impact of FinTech start-ups on incumbent retail banks’ share prices. Financial Innovation, 3(1). https://doi.org/10.1186/s40854-017-0076-7
Lin, C., Li, B., & Wu, Y. J. (2018). Existing knowledge assets and disruptive innovation: the role of knowledge embeddedness and specificity. Sustainability, 10(342), 1–15. https://doi.org/10.3390/su10020342
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Otoritas Jasa Keuangan. (2019). Statistik Perbankan Indonesia Vol 17 No 11. https://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Documents/pages/statistik-perbankan-indonesia---oktober-2019/SPI Oktober 2019.pdf
Pengnate, S. (Fone), & Riggins, F. J. (2020). The role of emotion in P2P microfinance funding: A sentiment analysis approach. International Journal of Information Management, 54(April). https://doi.org/10.1016/j.ijinfomgt.2020.102138
Pérez, L., Paulino, V. D. S., & Cambra-Fierro, J. (2017). Taking advantage of disruptive innovation through changes in value networks: insights from the space industry. Supply Chain Management: An International Journal, 22(2), 97–106. https://doi.org/10.1108/SCM-01-2017-0017
Pham, T., Talavera, O., & Yang, J. (2019). Multimarket competition and profitability: evidence from Ukrainian banks. Oxford Economic Papers, 1–29. https://doi.org/10.1093/oep/gpz041
Phan, D. H. B., Narayan, P. K., Rahman, R. E., & Hutabarat, A. R. (2019). Do financial technology firms influence bank performance? Pacific-Basin Finance Journal, November 2, 1–13. https://doi.org/10.1016/j.pacfin.2019.101210
Pilloff, S. J. (1999). Does the presence of big banks influence competition in local markets? Journal of Financial Services Research, 15(3), 159–177. https://doi.org/10.1023/A:1008165132438
Ramlall, I. (2018). FinTech and the financial stability board. Understanding Financial Stability, 71–81. https://doi.org/10.1108/978-1-78756-833-420181016
Rasool, F., Koomsap, P., Afsar, B., & Panezai, B. A. (2018). A framework for disruptive innovation. Foresight, 20(3). https://doi.org/10.1108/FS-10-2017-0057
Romānova, I., & Kudinska, M. (2017). Banking and Fintech: a challenge or opportunity? Contemporary Issues in Finance: Current Challenges from Across Europe, 98, 21–35. https://doi.org/10.1108/S1569-375920160000098002
Shawtari, F. A. M. (2018). Ownership type, bank models, and bank performance: the case of the Yemeni banking sector. International Journal of Productivity and Performance Management, 67(8), 1271–1289. https://doi.org/10.1108/IJPPM-01-2018-0029
Stern, C., Makinen, M., & Qian, Z. (2017). FinTechs in China – with a special focus on peer to peer lending. Journal of Chinese Economic and Foreign Trade Studies, 10(3), 215–228. https://doi.org/10.1108/JCEFTS-06-2017-0015
Tang, H. (2019). Peer-to-peer lenders versus banks: substitutes or complements? Review of Financial Studies, 32(5), 1900–1938. https://doi.org/10.1093/rfs/hhy137
Thakor, A. V. (2020). Fintech and banking: What do we know? Journal of Financial Intermediation, 41, 1–13. https://doi.org/10.1016/j.jfi.2019.100833
Wolfe, B., & Yoo, W. (2017). Crowding out banks: credit substitution by peer-to-peer lending. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3000593
Wonglimpiyarat, J. (2017). FinTech banking industry: a systemic approach. Foresight, 19(6), 590–603. https://doi.org/10.1108/FS-07-2017-0026
Zakky. (2018). 34 Nama Provinsi di Indonesia dan Ibukotanya Lengkap. https://www.zonareferensi.com/provinsi-di-indonesia/
Zalan, T., & Toufaily, E. (2017). The promise of Fintech in emerging markets: Not as disruptive. Contemporary Economics, 11(4), 415–430.
Zhang, Z., Hu, W., & Chang, T. (2019). Nonlinear effects of P2P lending on bank loans in a Panel Smooth Transition Regression model. International Review of Economics and Finance, 59(August 2017), 468–473. https://doi.org/10.1016/j.iref.2018.10.010
Anagnostopoulos, I. (2018). Fintech and regtech: Impact on regulators and banks. Journal of Economics and Business, 100, 7–25. https://doi.org/10.1016/j.jeconbus.2018.07.003
Azarenkova, G., Shkodina, I., Samorodov, B., & Babenko, M. (2018). The influence of financial technologies on the global financial system stability. Investment Management and Financial Innovations, 15(4), 229–238. https://doi.org/10.21511/imfi.15(4).2018.19
Christensen, C. M., Altman, E. J., Mcdonald, R., & Palmer, J. (2016). Disruptive innovation: intellectual history and future paths (No. 17–057). Harvard Business School.
Christensen, C. M., Raynor, M., & McDonald, R. (2015). What is disruptive innovation? Harvard Business Review, (December).
Coetzee, J. (2018). Strategic implications of fintech on South African retail banks. South African Journal of Economic and Management Sciences, 21(1). https://doi.org/10.4102/sajems.v21i1.2455
Cyree, K. B., & Spurlin, W. P. (2012). The effects of big-bank presence on the profit efficiency of small banks in rural markets. Journal of Banking and Finance, 36(9), 2593–2603. https://doi.org/10.1016/j.jbankfin.2012.05.015
Dang, V. D. (2019). The effects of loan growth on bank performance: Evidence from Vietnam. Management Science Letters, 9, 899–910. https://doi.org/10.5267/j.msl.2019.2.012
Das, P., Verburg, R., Verbraeck, A., & Bonebakker, L. (2018). Barriers to innovation within large financial services firms: An in-depth study into disruptive and radical innovation projects at a bank. European Journal of Innovation Management, 21(1), 96–112. https://doi.org/10.1108/EJIM-03-2017-0028
Doan, T., Nguyen, S., Vu, H., Tran, T., & Lim, S. (2015). Does rising import competition harm local firm productivity in less advanced economies? Evidence from the Vietnam’s manufacturing sector. The Journal of International Trade & Economic Development, (May), 37–41. https://doi.org/10.1080/09638199.2015.1035739
Fintech Indonesia. (2017). Penandatanganan MoU dengan Perbarindo. https://fintech.id/events/penandatanganan-mou-dengan-perbarindo/
Goldstein, I., Jiang, W., & Karolyi, G. A. (2019). To FinTech and beyond. Review of Financial Studies, 32(5), 1647–1661. https://doi.org/10.1093/rfs/hhz025
Gomber, P., Koch, J.-A., & Siering, M. (2017). Digital finance and FinTech: current research and future research directions. Journal of Business Economics, 87(5), 537–580. https://doi.org/10.1007/s11573-017-0852-x
Gupta, A., & Xia, C. (2018). A paradigm shift in banking: unfolding Asia’s FinTech adventures. In Banking and Finance Issues in Emerging Markets (pp. 215–254). Emerald Publishing Limited. https://doi.org/10.1108/S1571-038620180000025010
Hang, C. C., Chen, J., & Yu, D. (2011). An assessment framework for disruptive innovation. Foresight, 13(5), 4–13. https://doi.org/10.1108/14636681111170185
Hariyati, Tjahjadi, B., & Soewarno, N. (2019). The mediating effect of intellectual capital, management accounting information systems, internal process performance, and customer performance. International Journal of Productivity and Performance Management, 68(7), 1250–1271. https://doi.org/10.1108/IJPPM-02-2018-0049
Hoechle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal, 7(3), 281–312. https://doi.org/10.1177/1536867X0700700301
Jagtiani, J., & John, K. (2018). Fintech: the impact on consumers and regulatory responses. Journal of Economics and Business, 100, 1–6. https://doi.org/10.1016/j.jeconbus.2018.11.002
Jagtiani, J., & Lemieux, C. (2018). Do fintech lenders penetrate areas that are underserved by traditional banks? Journal of Economics and Business, 100(March), 43–54. https://doi.org/10.1016/j.jeconbus.2018.03.001
Jiang, C., Xu, Q., Zhang, W., Li, M., & Yang, S. (2018). Does automatic bidding mechanism affect herding behavior? Evidence from online P2P lending in China. Journal of Behavioral and Experimental Finance, 20, 39–44. https://doi.org/10.1016/j.jbef.2018.07.001
Kohardinata, C., Soewarno, N., & Tjahjadi, B. (2020). Indonesian peer to peer lending (P2P) at entrant’s disruptive trajectory. Business: Theory and Practice, 21(1), 104–114. https://doi.org/10.3846/btp.2020.11171
Lee, I., & Shin, Y. J. (2018). Fintech: Ecosystem, business models, investment decisions, and challenges. Business Horizons, 61(1), 35–46. https://doi.org/10.1016/j.bushor.2017.09.003
Levin, J., & Milgrom, P. (2004). Consumer theory. https://web.stanford.edu/~jdlevin/Econ 202/Consumer Theory.pdf
Li, Y., Spigt, R., & Swinkels, L. (2017). The impact of FinTech start-ups on incumbent retail banks’ share prices. Financial Innovation, 3(1). https://doi.org/10.1186/s40854-017-0076-7
Lin, C., Li, B., & Wu, Y. J. (2018). Existing knowledge assets and disruptive innovation: the role of knowledge embeddedness and specificity. Sustainability, 10(342), 1–15. https://doi.org/10.3390/su10020342
Liu, J., Li, X., & Wang, S. (2020). What have we learnt from 10 years of fintech research? A scientometric analysis. Technological Forecasting and Social Change, 155(March), 1–12. https://doi.org/10.1016/j.techfore.2020.120022
Ma, X., Sha, J., Wang, D., Yu, Y., Yang, Q., & Niu, X. (2018). Study on a prediction of P2P network loan default based on the machine learning LightGBM and XGboost algorithms according to different high dimensional data cleaning. Electronic Commerce Research and Applications, 31(June), 24–39. https://doi.org/10.1016/j.elerap.2018.08.002
Minto, A., Voelkerling, M., & Wulff, M. (2017). Separating apples from oranges: Identifying threats to financial stability originating from FinTech. Capital Markets Law Journal, 12(4), 428–465. https://doi.org/10.1093/cmlj/kmx035
Montgomery, N., Squires, G., & Syed, I. (2018). Disruptive potential of real estate crowdfunding in the real estate project finance industry: A literature review. Property Management, 36(5), 597–619. https://doi.org/10.1108/PM-04-2018-0032
Nguyen, T. Le, Vu Van, H., Nguyen, L. D., & Tran, T. Q. (2017). Does rising import competition harm Vietnam’s local firm employment of the 2000s? Economic Research, 30(1), 1882–1895. https://doi.org/10.1080/1331677X.2017.1392883
Otoritas Jasa Keuangan. (2019). Statistik Perbankan Indonesia Vol 17 No 11. https://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Documents/pages/statistik-perbankan-indonesia---oktober-2019/SPI Oktober 2019.pdf
Pengnate, S. (Fone), & Riggins, F. J. (2020). The role of emotion in P2P microfinance funding: A sentiment analysis approach. International Journal of Information Management, 54(April). https://doi.org/10.1016/j.ijinfomgt.2020.102138
Pérez, L., Paulino, V. D. S., & Cambra-Fierro, J. (2017). Taking advantage of disruptive innovation through changes in value networks: insights from the space industry. Supply Chain Management: An International Journal, 22(2), 97–106. https://doi.org/10.1108/SCM-01-2017-0017
Pham, T., Talavera, O., & Yang, J. (2019). Multimarket competition and profitability: evidence from Ukrainian banks. Oxford Economic Papers, 1–29. https://doi.org/10.1093/oep/gpz041
Phan, D. H. B., Narayan, P. K., Rahman, R. E., & Hutabarat, A. R. (2019). Do financial technology firms influence bank performance? Pacific-Basin Finance Journal, November 2, 1–13. https://doi.org/10.1016/j.pacfin.2019.101210
Pilloff, S. J. (1999). Does the presence of big banks influence competition in local markets? Journal of Financial Services Research, 15(3), 159–177. https://doi.org/10.1023/A:1008165132438
Ramlall, I. (2018). FinTech and the financial stability board. Understanding Financial Stability, 71–81. https://doi.org/10.1108/978-1-78756-833-420181016
Rasool, F., Koomsap, P., Afsar, B., & Panezai, B. A. (2018). A framework for disruptive innovation. Foresight, 20(3). https://doi.org/10.1108/FS-10-2017-0057
Romānova, I., & Kudinska, M. (2017). Banking and Fintech: a challenge or opportunity? Contemporary Issues in Finance: Current Challenges from Across Europe, 98, 21–35. https://doi.org/10.1108/S1569-375920160000098002
Shawtari, F. A. M. (2018). Ownership type, bank models, and bank performance: the case of the Yemeni banking sector. International Journal of Productivity and Performance Management, 67(8), 1271–1289. https://doi.org/10.1108/IJPPM-01-2018-0029
Stern, C., Makinen, M., & Qian, Z. (2017). FinTechs in China – with a special focus on peer to peer lending. Journal of Chinese Economic and Foreign Trade Studies, 10(3), 215–228. https://doi.org/10.1108/JCEFTS-06-2017-0015
Tang, H. (2019). Peer-to-peer lenders versus banks: substitutes or complements? Review of Financial Studies, 32(5), 1900–1938. https://doi.org/10.1093/rfs/hhy137
Thakor, A. V. (2020). Fintech and banking: What do we know? Journal of Financial Intermediation, 41, 1–13. https://doi.org/10.1016/j.jfi.2019.100833
Wolfe, B., & Yoo, W. (2017). Crowding out banks: credit substitution by peer-to-peer lending. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3000593
Wonglimpiyarat, J. (2017). FinTech banking industry: a systemic approach. Foresight, 19(6), 590–603. https://doi.org/10.1108/FS-07-2017-0026
Zakky. (2018). 34 Nama Provinsi di Indonesia dan Ibukotanya Lengkap. https://www.zonareferensi.com/provinsi-di-indonesia/
Zalan, T., & Toufaily, E. (2017). The promise of Fintech in emerging markets: Not as disruptive. Contemporary Economics, 11(4), 415–430.
Zhang, Z., Hu, W., & Chang, T. (2019). Nonlinear effects of P2P lending on bank loans in a Panel Smooth Transition Regression model. International Review of Economics and Finance, 59(August 2017), 468–473. https://doi.org/10.1016/j.iref.2018.10.010