The main process of lending mechanism are almost the same across different online peer-to-peer lending platforms. Potential users, including borrowers and lenders first have to register with personal information, such as ID card number, bank account, personal information in a third-part credit institutions, etc. Based on these information, credit rating of users are calculated. The lending procedure is initialed by borrowers. Borrowers indicate the amount they want to borrow and the maximum rate they are willing to offer, and to provide some other optional information, such as loan purpose, repayment period, listing auction format, etc. Lenders provide certain amount of money and choose a lending pattern. Currently, there are two patterns (As shown in Fig. 1). One pattern is the lender chooses a borrower on the platform, and borrow the money to him/her. Another pattern is the lender puts money in a pool of funds. The P2P lending company dispatches the money to different borrowers. In this pattern, a lender doesn’t know the borrower’s information.
When a borrower’s requirement is fully funded, the related transactions are send to the lending intermediary for further review before becoming a loan. In this stage, some additional documents may be asked for to demonstrate their credibility. Once a listing is materialized into a loan, money will be transferred from the accounts of listing lenders to the accounts of listing borrowers. The environment of P2P lending system is shown in Fig. 2.
To detailed investigate each stage of the procedure, we divide the whole process into 6 steps: application, acknowledge, credit, approval, assign and loan management. In the application process (Fig. 3), P2P lending is obviously need more information and operations compared with bank loan. One reason is P2P lending needs more information for credit audition. The other reason is P2P lending allows lenders to choose a borrower, so the information flow is more complex than bank loan.
In the following acknowledge, credit and approval steps (Figs. 4, 5 and 6), the P2P lending process is much simpler than bank loan. This characteristic makes the P2P lending is much appeal to SME and personal borrowers, because they can provide little financial certificate and few mortgage assets. It should be noted that the credit analysis in P2P lending relies on users’ information. So the credit method is different from bank.
The procedures of assign and loan management in P2P lending is quite different from bank loan (Figs. 7 and 8). In assign step, P2P is more complex than bank loan. This is because the rate is predefined in bank loan, but it is determined based on negotiations between borrowers and lenders in P2P lending. This flexible investment rate is a big progress on providing more marketed rate based on loan demands and requirements, and also attract customers. In the loan management step, bank is more complex than P2P lending, because it uses a standard process to ensure the loan is successful. P2P lending is emerging in this step, so many risks are there. For example, the information flow is suspend on investment failure, no more post-loan information is used to resolve the failure.