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Consumer marketplace lending in Australia: Credit scores and loan funding success

Author

Listed:
  • Andrew Grant
  • Luke Deer

Abstract

This article examines borrower acceptance in consumer marketplace lending using a unique dataset from the largest platform in Australia, Society One. Applications are initially filtered through an automated decision tree based on a third-party Veda (Equifax) credit score. At the second stage of assessment, loan applications are underwritten by the platform before being offered to sophisticated investors for purchase. The platform accepts around 11% of completed applications, with around 55% declined by an automated decision process and the remaining 34% by the manual underwriting process. More than 80% of purchased loans were made to borrowers with credit scores classed as ‘Good’, ‘Very Good’ or ‘Excellent’ (the threshold for ‘Good’ being a score of 622). However, underwriters decline around two-thirds of these higher credit score applicants, showing the importance of the underwriting process to the platform’s growth. JEL Classification: G21, G23, D14, D45, D82

Suggested Citation

  • Andrew Grant & Luke Deer, 2020. "Consumer marketplace lending in Australia: Credit scores and loan funding success," Australian Journal of Management, Australian School of Business, vol. 45(4), pages 607-623, November.
    • Handle: RePEc:sae:ausman:v:45:y:2020:i:4:p:607-623
    DOI: 10.1177/0312896219883678
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    References listed on IDEAS

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    Cited by:

    1. Campbell, Daniel & Grant, Andrew & Thorp, Susan, 2022. "Reducing credit card delinquency using repayment reminders," Journal of Banking & Finance, Elsevier, vol. 142(C).

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    More about this item

    Keywords

    Consumer lending; credit scoring; marketplace lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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