Disruptive innovation : the impact of peer-to-peer lending on funding for small business

Abstract

A large number of jobs are created by small business and, as a result, these small businesses contribute substantially to national competitiveness. This often means that the onus of achieving targets set by national policy makers for the creation of new jobs and fostering of economic growth falls on the small business segment in times of financial distress. As a result, the role and importance of small businesses in creating new jobs and stimulating the economy to improve national competitiveness becomes increasingly evident. In order for a small business to become established, to survive and to grow, they require access to funding, particularly in the early stages of their existence. This research report seeks to better understand the role played by a specific disruptive innovation; peer-to-peer lending platforms, in providing funding to small business owners and to determine what would drive a small business owner to utilise a peer-to-peer lending platform as a substitute delivery channel from traditional financial institution funding mechanisms. The research delves into the various types of innovation, with a specific focus on Christensen’s theory of disruptive innovation and looks at the characteristics of a disruptive innovation. In addition, peer-to-peer lending platforms are discussed to understand the nature of social lending in the financial services environment. The research will be conducted in a quantitative manner, seeking to understand through an online, emailed survey, what characteristics small business owners find necessary when gaining access to finance and how this would shed more light on the acceptance of a disruptive innovation over a traditional financial institution delivery channel.