Blockchain’s Role in Peer-to-Peer Lending

Laura Gonzalez is Associate Professor of Finance. Below is the summary of her research published in Managerial Finance.

Person-to-person lending – also known as peer-to-peer lending, peer-to-peer investing, and social lending, and abbreviated as P2P lending – refers to lending and borrowing between strangers through a for-profit online platform. It is done without going through a traditional financial institution, although they may participate as lenders. The service started in the United Kingdom in 2005, but U.S. platforms quickly took the lead in loan volume. In the direct unsecured P2P lending model, the usual loan application information includes loan size, maturity and purpose, percentage of loan funded, number of days the loan application has been visible online to potential lenders, some measure of credit rating and the interest rate to be charged. On some platforms, borrowers can submit an image. Platform services include calculating interest rates and repayment terms, creating written documents, and disbursing funds. Both borrowers and lenders are charged fees, and if the loan is not repaid in full, the platform sells it to a debt collection agency. P2P services are perceived as convenient, efficient, flexible and empowering, and previous research has found that borrowers who are considered trustworthy receive 31% more lending bids than average.

Blockchain is also a decade-old “trust machine.” It is a decentralized ledger that contains secure, fast and transparent transaction records. It uses cryptography and hashing algorithms, and requires consensus to update records, which makes transactions practically tamper-proof and therefore, more trustworthy. While the full potential of this fast-evolving technology is not yet clear, the possible applications are numerous and substantial. The gradual implementation of blockchain technology in P2P lending platforms facilitates safer transparent quick access to funds without having to deal with the complex, slower and more costly loan processes of banks. However, other uses of blockchain may be needed.


The gradual implementation of blockchain technology in peer-to-peer (P2P) lending platforms facilitates safe and quick access to funds without having to deal with the more complex and costly processes of banks. Beyond that, this study examines trust-enhancing practices that show a need for blockchain to assist in monitoring and bad loan recovery.


This study examines 909 lending decisions by finance students on a mock P2P site. The loan applications were identical, with the exception of a female or male photo ( icon) and reports of the applicant having raised half the loan in either 3 or 11 days (vs. 7).


Investors who have experienced financial losses are more likely to lend higher amounts to loan applicants that are highly trusted by other lenders, a phenomenon known as “herding.” This effect is especially true for male investors lending to highly trusted female loan applicants. 


This study is the first behavioral experiment to examine the influence of herding in P2P lending.  The findings emphasize the need for blockchain to assist beyond maintaining trusted records and safe transfers of funds. 

Practical implications

Blockchain can compensate for biases in lenders’ decision making and improve monitoring by helping track digital money transactions and assisting in bad loan recovery efforts.

Gonzalez, L. (2019), "Blockchain, herding and trust in peer-to-peer lending", Managerial Finance.