Bridge or Barrier? Digital Distance and Its Effects on Peer-to-Peer Lending

Abstract

Although existing literature has demonstrated that biases and preferences arising from offline group proximity manifest in online peer-to-peer lending markets and hinder lending activities, the role of biases and preferences originating from online group proximity is still unclear. Using data from Facebook and a popular peer-to-peer prosocial lending platform named Kiva, we examine how digital distance (online social connectedness barriers) affects online prosocial peer-to-peer lending behavior across states in the United States. We find that digital distance barriers between states inhibit prosocial lending between them, in addition to other offline distance-related barriers studied in the literature, such as geographical distance. Also, we find that advanced IT infrastructure can, to an extent, compensate for the negative effect of digital distance on prosocial lending. These findings suggest that online social disconnectedness creates barriers to prosocial lending, but advanced IT infrastructure can help mitigate these barriers.