How to win trust: The case of P2P financial fraud in China
| Author | T Wing Lo,Wan Sang Kan |
| DOI | http://doi.org/10.1177/26338076221140894 |
| Published date | 01 March 2023 |
| Date | 01 March 2023 |
| Subject Matter | Articles |
How to win trust: The case of
P2P financial fraud in China
T Wing Lo and Wan Sang Kan
Department of Social and Behavioural Sciences, City University of Hong
Kong, Hong Kong, China
Abstract
Originally, the establishment of peer-to-peer lending (P2P) helped poor people to solve short-
term financial problems or had a charitable nature. Along with its development, it became a
financial method that helps people invest. It has been developing rapidly in China since 2007
and was claimed as a Ponzi scheme since many investors have been deceived. That is, P2P in
China is viewed more as a fraud rather than a formal financial method. Although some studies
have explored the overall picture of P2P, this study filled the research gaps by i) using court
cases and media reports for analysis, and ii) adopting trust theory and the concept of guanxi,to
explore the trust relationship in the P2P. To investigate the process and mechanism in P2P, the
present study aimed to examine the situation of P2P investment in China and the trust-build-
ing process between investors and P2P companies by using trust theory. A case study method
was adopted using published court and media cases. A thematic analysis approach was used to
analyse the data. The results demonstrate that investors were guaranteed high financial
returns by the companies, and they profited from their initial investments. However, they
were commonly deceived in subsequent investments after their trust in the P2P companies
was established through the initial gain. The results also reveal a trust-building process
between investors and P2P companies through the quality of search, experience and credence
as adopted in trust theory. The study complements the trust theory with Chinese cultural
concepts such as authority and guanxi and reveals how these are applied in Chinese business
malpractices.
Keywords
Peer-to peer lending, trust, trust-building, guanxi,financial fraud, China
Date received: 14 February 2022; accepted: 21 October 2022
Corresponding author:
T Wing Lo, Department of Social and Behavioural Sciences, City University of Hong Kong, Hong Kong, China.
Email: twlo@cihe.edu.hk
Article
Journal of Criminology
2023, Vol. 56(1) 116–135
© The Author(s) 2022
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/26338076221140894
journals.sagepub.com/home/anj
Introduction
The concept of peer-to-peer (P2P) lending comes from foreign countries and it was founded by
a U.K. company in 2005 (Ma et al., 2020). It is a lending method that is similar to private
lending. The establishment of P2P lending originally helped poor people to solve short-term
financial problems or had a charitable nature (Chen, 2018). Recently, P2P online lending
has been defined as a matching company in an online context for investors to provide unsecured
loans to borrowers (Kirby & Worner, 2014). P2P lending typically needs a lending service pro-
vider who acts as a middleman between the investors and borrowers, via an online platform or a
mobile app (Investor and Financial Education Council [IFEC], 2021). Having low overhead is
one of the attractive points for investors to put money in a P2P online platform (IFEC, 2021).
On one hand, borrowers can apply for loans with high flexibility, such as being able to set the
repayment terms and the interest rate of the loan (IFEC, 2021). On the other hand, the P2P
company offers benefits to the investors and offers fewer restrictions and standards to the bor-
rowers, when compared with the financial institutes or banks (IFEC, 2021). Therefore, the com-
panies attract a large number of investors and borrowers. Although P2P lending may offer a
higher returns to an investor and lower lending standards to the borrowers, there are two
major risks associated with P2P lending that may cause the investors to lose all their invest-
ments, namely credit risk and the risk of a company’s collapse, and fraud or malpractice
(IFEC, 2021).
Literature review
Fraud
Fraud is defined as ‘criminal deception’(van Driel, 2019). Some may point out that fraud is not
a new crime and it is unique in many ways (Blakeborough & Correia, 2017). Some of the char-
acteristics are as follows: i) it may take place over long and short periods of time; ii) the
methods of fraud can be changed through interactions and iii) it can happen both offline and
online. (Blakeborough & Correia, 2017). Along with the development of Information and
Communications Technology, fraud has evolved online, especially financial fraud. Blanton
(2012) indicated that financial fraud has increased fivefold in the United States in past decades.
Contemporary development of fraud
Fraud was a common deception occurring in numerous countries, especially after the financial
crisis in 2007–2008. It showed that the Ponzi schemes, illegal manipulation and mis-selling of
financial products to investors without financial knowledge, occurred worldwide (Reurink,
2016). Fraud might cause several impacts on victims and lead to adverse consequences for indi-
viduals or even society. Unfortunately, there was very little research on the victims of fraud
(Button & Cross, 2017). For instance, Button and Cross (2017) summarised that fraud will
cause those affected to become emotionally and psychologically unstable, strained interper-
sonal relationships and financial problems. Recent research on investment fraud uncovered
these industries in America showed that investment behaviours and psychological mindsets
were predictors that might expose investors to financial scams (Marguerite et al., 2020).
Marguerite et al. (2020) discovered that investors who were more materialistic were at
Lo and Kan 117
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