P2P and Internet Bank Lending
Similar to creating new equity financing channels in the form of crowdfunding, the internet has also revolutionized the lending market. Online peer-to-peer (P2P) lending is the practice where ordinary consumers lend directly to individuals and small businesses using online platforms, without using a traditional financial intermediary such as a bank. Historically, commercial banks found small size loans too costly to cover, but these days digitally mediated transactions are reducing lending costs and leading to a boom in financial activities.
While crowdfunding attracts many “diao-si” investors who make a small investment for the sheer joy of participating, P2P lending appeals to a smaller group of wealthy investors who are far more willing to take risks in large amounts. P2P has exploded in popularity in China over the last few years (see Figure 8.3), and China has already surpassed the level in the US (where the model was first developed) and become the world's largest peer-to-peer lending market since 2015. Across the country there are estimated to be more than 3,000 P2P platforms focusing on four industry segments: consumer lending, small business lending, auto loans and real estate lending.
Figure 8.3 Growth in Chinese P2P Online Lending (2011–2015)
(Data Sources: Wangdaizhijia.com, Wind Information)
The P2P lending business is part of the shadow banking market in China, as many P2P lending websites gather funds from the public and then lend funds to individuals or small companies, instead of simply serving as an information platform to facilitate lending and borrowing between parties. A general shortage of credit in the Chinese banking system, combined with banks’ preference to lend to large SOEs (state-owned enterprises), drives individuals and SMEs to online lenders. Attracted by the rapid growth and business potential, venture capital and major internet firms have flocked to the P2P platform start-ups (see Table 8.2).
Table 8.2 Major Chinese P2P platforms and their investors
| Chinese P2P Platforms | Investors (Domestic and Foreign) |
| Renrendai | Tencent |
| ppdai.com | Sequoia Capital |
| Yooli.com | Softbank China Venture Capital, Morningside Group |
| jimubox.com | Xiaomi, Temasek, Matrix Partners, Ventech Capital, Magic Stone Investment |
| Penging.com | Shenzhen Hi-tech Investment Group |
The essence of “peer-to-peer” lending is to use network technology to achieve equal positioning by both the borrower and lender in four aspects: information disclosure, risk appetite, term structure and rights and obligations. In China, however, P2P is understood to be “person-to-person” by some market players. Their P2P platforms aim to allow anyone with money to become a lender, and anyone who needs money to apply for a loan. Without a proper setting, the online lending business is ripe for abuse. Recently there have been a number of Ponzi scheme-like scandals where lenders have pooled funds from investors without matching them to borrowers.
To better protect investors’ interests, the new Guideline has clarified two critical issues relating to P2P lending. As a result, the market has seen a complete shake-up of the existing business model, and the breakneck pace of P2P lending growth has slowed dramatically. The first requirement of the Guideline is that P2P platforms can only serve as information channels to match borrowers with lenders. The Guideline bans P2P sites from “enhancing borrower credit worthiness” (that is, providing security or guarantees for the loan). In other words, P2P lending platforms are now defined as information intermediaries (brokers) rather than credit intermediaries (banks).
This clear definition is a blow to many P2P platforms. In developed markets, the government's credit bureau has data on individuals’ credit history, from which the P2P operators can supply a score for the potential borrower, on which potential lenders can base their decision about whether to enter into the transaction. (In fact, internet firms like Alibaba and Tencent are using their online big data to develop new credit score systems to fill this gap in China, which will be discussed later in the chapter.) But in China this type of credit data system is not fully developed, making additional types of credit support, such as collateral or guarantees, necessary for P2P business.
For example, to attract investors to try out their innovative loan offerings, new P2P platform entrants typically provide high expected return figures. But first-time investors tend to worry about the inherent high risk related to high returns, so the P2P platforms often implicitly guarantee “principal amount protection” to appease investors’ concerns. The reality is, however, that Chinese laws prohibit the salespeople of investment products from guaranteeing “principal protection” or investment returns, except for bank deposits or government bonds (because they are essentially risk free).
For smaller P2P businesses, they will likely have difficulty finding customers if they are not permitted to provide any credit support (such as guarantees or collateral) to win over investors’ confidence. Even before the 2015 regulatory guideline, repeated fraud-related bankruptcies or sudden website closures had already highlighted the risks of the smaller P2P operators. The recent online fraud cases involving high profile P2P platforms further shook the confidence of the public. (See the “P2P Fraud” box.) Therefore, a consolidation of businesses is expected, where only the P2P platforms backed by large companies with trusted reputations can survive.
?P2P Fraud – Buried and Cremated
Information disclosure is at the core of P2P lending, but many platforms share very little information with retail investors. With limited information disclosure, the users – especially those who are not sophisticated in finance – are not necessarily fully informed of the risks involved. Often the investors are given an expected return figure, but do not have access to information that allows them to determine the level of risk of a loan. For example, some P2P platforms in China operate under the model of cash pooling, in which funds are collected into a pool before being lent out to borrowers with investment projects. From time to time, operators run away with funds put in by investors.
In December 2015, Beijing police started investigating a major Chinese P2P lender, Ezubao, for illegal operations. According to news reports, the company raked in funds from nearly 1 million investors by promising annual returns as high as 15%, and its total loan volume exceeded $1 billion at the end of 2015. In February 2016, the police announced 21 arrests (including that of the Ezubao founder), and the company was shut down.
The local officials on the case found out that more than 95% of the investment products that Ezubao listed on its platform were fake projects, and the company executives went to great efforts – including literally burying the evidence – to conceal the Ponzi scheme. They buried some 1,200 documents nearly 20 feet underground at a site on the outskirts of Hefei, Anhui Province, where Ezubao was based. The local police had to deploy two excavators to work for 20 hours to dig them up.
But the closure of another P2P platform was even more dramatic. In February 2016, Tongxin Venture Investments, a P2P platform based in Taian, Shangdong province, made an “official announcement” online that consisted of only two photos. One photo was a certificate showing that the company's owner had been “cremated”. The other was the death certificate of the owner, with the cause of death listed as “heart suddenly stopped beating”.
The second important requirement in the Guideline is that internet finance players like P2P platforms must entrust their users’ funds to the custody of licensed brick-and-mortar banks. In the past, most P2P platforms kept the funds at third-party payment institutions, and the market believed that was a major flaw leading to cases where P2P operators fled with customer funds. To comply with the new rules, P2P platforms are reaching out to banks to set up custodian partnerships.
This custodian relationship is likely to accelerate commercial banks’ entry into online lending. China's commercial banks had kept a close eye on the enormous custodian business for P2P and other internet finance businesses, but the regulatory uncertainties kept them from making major moves. With the new Guideline in place, commercial banks will speed up their entry into the P2P custodian business, and they may acquire quality P2P platforms to strengthen their internal capabilities for internet finance activities. However, due to reputation and credit risk considerations, banks may not accept small P2P operators as custodian clients, which should lead to further consolidation of the P2P market in favor of the larger players.
In this context, a licensed internet bank can be viewed as a formally registered P2P platform with a full banking license to provide legitimate online deposits and lending services. WeBank, which is 30%-owned by the internet giant Tencent, was the first licensed privately-owned internet bank to start operations. Zhejiang Internet Commerce Bank (also called MYBank), a subsidiary of Ant Financial Services Group and closely affiliated with the Alibaba Group, completed its registration a few months later and launched similar web-only banking businesses in mid-2015. Before the arrival of these official internet banks, internet firms had already provided financing services for e-commerce merchants in the form of microloans or supply chain financing. With their experience with individuals and vendors in mobile commerce, they are well placed to serve the under-banked consumers and small businesses at a low cost.
Traditionally, most of the state-run banks in China favor lending to big institutions for two reasons. On the one hand, the major commercial banks have had long-term relationships with and knowledge of the big companies in China. On the other hand, historically the banks have limited data tools for credit risk evaluation of individual consumers and SME businesses, and the transaction costs for those small loans under the brick-and-mortar banking model are prohibitively high. By contrast, internet banks run branchless banking operations that can serve customers 24/7. Their cloud-based model requires much lower operational costs than the traditional brick-and-mortar banking model. In addition, their parent companies’ substantial databases of consumer behavior from internet businesses allow them to compile credit risk data in unconventional and innovative ways.
The internet banks are therefore able to provide financial solutions for a gap in the consumer economy, i.e. providing small amounts of credit to people that cannot be reasonably priced within the formal banking system to fill their special needs. Again, take the first internet loan by WeBank as an example. For the loan to the randomly selected truck driver, Tencent's WeBank used internet-linked data mining tools to assess the credit background of the potential borrower. The driver was a club member at the Tencent-invested logistics platform called Huo-che-bang (“Truck Club”), which linked logistics operators that needed to ship cargo with truck driving companies.
At the time of the loan, this platform had one million drivers with 650,000 truckers as members, and it was serving more than 160,000 logistics company customers. For each club member trucker, Tencent's platform had a large amount of information, such as total distances travelled, total cargo volumes transported, the scope of orders handled and so on. Some drivers had to pre-pay cargo freight, but commercial banks were not set to process such small loan amounts of that nature. WeBank, however, could refer to the data from the driver's operations on the mobile app, develop its own analytic model and evaluate the potential borrower's creditworthiness.
There is no doubt that the branchless bank concept is a major revolution from the existing banking model. Besides lower operating costs, it brings a lot of convenience to the users: there is no need to search for the locations of branches, no travelling required and no queues. Concerning the regulatory requirement on personal identity verification, however, the fact that they are branchless has been the biggest obstacle for internet banks to be fully functional as planned.
Under the current rules of China's central bank, PBOC, when individuals open a banking account, they must visit a real bank outlet to have their identities verified by a bank employee. Similar regulations on personal loans require bank employees to visit every loan applicant at the person's work or business, and then personally witness the signing of each application. Internet-only banks, however, by definition have intentionally eliminated these face-to-face encounters for the sake of efficiency and cost saving.
The solution offered by the internet firms is biometric identification at remote terminals. Among the possible options, facial images have been the top choice by internet firms, ahead of fingerprints, palm prints, retina images and other alternatives. One obvious consideration is probably cost: with the cameras on desktop PCs and smartphones, the marginal cost of taking a digital picture for identification is close to zero. Also, the facial characteristics read by the technology can be compared with the photos at the personal identification card information center and those in police databases. This type of technique means that online facial recognition can leverage offline security agencies’ authoritative databases, whose information has been developed by strict face-to-face settings.
In January 2015, WeBank demonstrated Tencent's own facial recognition technology at the first pilot internet loan, where the truck driver verified his identity from a remote terminal. Shortly thereafter, one of its executives commented in a public interview that their facial recognition technology was quite mature and had lower error probability than the verifications done by human eyes. Supported by strategic cooperation between Tencent and the National Citizen Identity Information Center, which was affiliated to the Ministry of Public Security, its accuracy rate reached 99.65% at that time.
A few months later, Alibaba's founder Jack Ma unveiled Alibaba's own version of facial recognition at the CeBit conference in Hanover, Germany. He pushed a “Buy” button on an app that he called “Smile to Pay”, matched his face with a white outline, and took a picture of himself. That information was transferred to the Alipay server and verified. With that, he bought a 1948 vintage souvenir stamp from Hanover as a gift for the mayor. According to media reports, Alibaba's face scanning system (called Face++) had an accuracy rate of around 99.99%. In addition to remote verification for banking, Alibaba's aim is to apply the facial recognition to all e-commerce, so that within a few years there will be no need to enter a password.
So far, China's central bank is not fully convinced of the accuracy and security of the facial recognition technology. In 2015, the central bank, PBOC, decided that “the conditions are not yet mature for using biometric technology as the primary means of verifying the identities of depositors”. According to the Guideline, biometric identification cannot be used officially until a national standard for its use is developed in the financial sector and the related financial regulations are amended accordingly. Since WeBank's initial loan made remotely to the truck driver, the personal loan service remains in the testing phase. Similarly, Alibaba's MYbank is operating with limited offerings because the physical presence requirements for the opening of accounts are not lifted yet.
The controversy around facial recognition technology illustrates the fine balance that China's financial regulators have to strike. In the Guideline, the authorities have recognized the efficiencies of online banking, the new services it offers to customers and the innovations it brings to the financial industry. The challenge for regulators is to keep pace with technological change and strike a delicate balance that allows innovation to flourish while mitigating risk.
来自 “ ITPUB博客 ” ，链接：http://blog.itpub.net/23488160/viewspace-2133813/，如需转载，请注明出处，否则将追究法律责任。
转载于:http://blog.itpub.net/23488160/viewspace-2133813/
被折叠的 条评论
为什么被折叠?
到【灌水乐园】发言
