How to win trust: The case of P2P financial fraud in China

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-building 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.