Blockchain, Herding and Trust in Peer-to-Peer Lending

Blockchain is a decade-old “trust machine”, and peer-to-peer (P2P) lending a decade-old alternative to banks in online platforms where lenders have limited information about borrowers. 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. This study is the first behavioral experiment to examine heuristics when lenders compare standard bidding information. Specifically, it examines 909 lending decisions by 303 undergraduate finance students on a mock P2P site in which either male or female loan applicants are reported to be highly trusted by other lenders. Overall, the investors who have experienced financial trauma appear more susceptible to trust-enhancing heuristics. This herding effect appears more pronounced for male investors lending to trusted female applicants. In conclusion, blockchain can arguably support much needed financial inclusion in P2P lending by using technology not only to facilitate transactions, but also to assist in monitoring and bad loan recovery