Online peer-to-peer lending and its implications for small business credit financing in Norway

Abstract

This thesis seeks to explore how the emergence of online peer-to-peer (P2P) lending will impact small businesses lending in Norway. Increasing attention has been drawn to small businesses and their apparent struggle to obtain appropriate credit financing. At the same time, online P2P lending, part of the new wave of financial technologies, has been held up as a potential remedy for this credit rationing. Our research involves two main parts. First, we study the extent to which Norwegian small businesses experience a shortage of access to credit financing. Second, we attempt to answer whether online P2P lending can improve the current state of small business lending. To answer these questions we have conducted in-depth interviews with different stakeholders related to the issue. We also draw on literature that spans the fields of strategy, economics and innovation, to shed light on why small businesses have difficulties in getting loans and whether online P2P lending can be part of the solution. Our findings suggest that small businesses have suffered from stricter capital requirements imposed on financial services following the financial crisis, as well as consolidation of local banks. Further, we find that online P2P lending can be particularly useful to small businesses without the proper collateral for securitization of loans, primarily because of different cost structures. However, we also find that some of the value promised by the emerging lenders is of limited value so far; such as expediency and innovative credit assessment. Our research leads us to believe it is unlikely that online P2P lending will disrupt traditional banks in the near future. Instead, the industry looks to evolve as a much-needed supplement in the market for small business lending, specializing and catering to their needs.