Chinese P2P Lending – The Red Dragon Gets Fiery with the Industry

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Continuing with my fintech posts once again, I return to Asia and look at Chinese P2P Lending.

Chinese P2P Lending – A brief insight

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China’s peer-to-peer lending sector has emerged as the largest and most dynamic online alternative finance sector in the world. (ACCA, October 2015)

The P2P lending industry has increased since 2011, with 2,600 platforms by the end of 2015, but has experienced stops and starts due to issues in controlling risk. Over the past year around 1,000 businesses have closed. Risk has been a major talking point, especially with credit risk – a few commentators have mentioned that data mining could provide a way to identify better borrowers, but this ultimately depends on availability and dimensions of data.

In addition, many have stressed that standards need to be put in place in the industry such as being more transparent, the requirement of loan loss provisions, as well as having safety requirements that are put in place to modernise and regulate the industry.

Chinese P2P Lending – Ezubao Scandal

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It’s no surprise that many have commented on the industry and how measures need to be put in place after the Ezubao scandal. At the start of the year, it was announced on Chinese state media that the company cheated over 900,000 investors out of US$7.6 billion.

According to a few sources, 95 percent of investment projects on Ezubao’s site were fake.

The downfall of Ezubao definitely tarnished the industry’s reputation in China, however, the government are clamping down on companies that don’t play by the rules.

They have banned P2P platforms from securitising assets or offering debt transfer mechanisms that mimic securitisation. Companies are prohibited from using P2P platforms to finance their own projects according to The FT.

These regulations mark the first comprehensive framework for regulating the P2P industry in China.

Xu Hongwei, chief executive of Online Lending House told the FT : “In the past when there basically were no limits, and lots of people operated in the grey area. It won’t be like that any more. Now that we have standards, you just follow the standards. The whole industry will become more normalised.”

The Chinese government has a made a push on alternative finance to help people who struggle to access loans from banks (who are known to lend to large corporates or those with hard assets to pledge as collateral).

There are still over a 1,000 what has been dubbed as “problem platforms” in China and these equal to nearly half of all platforms.

Other rules that have been in place that standout include restricting P2P groups from operating “fund pools” in which investor funds are not matched with specific loan assets.

Also, a cap on the amount consumers and businesses can borrow has been put in place. For consumers the cap stands at 200,000 yuan on one platform a 1 million yuan over multiple platforms. For businesses the cap is 1 million yuan on a single platform and 5 million yuan over multiple lenders. (Crowdfund Insider, August, 2016)

Moreover, P2P companies will not be allowed to operate “offline”. Platforms must abide to transparency regulations such as lending statistics and the rate of defaults.  In addition, a blacklist will be put together to block bad actors from fraudulent activities.

Before these P2P rules came into play (and the Ezubao scandal), people didn’t really judge on which platform is good or bad, however, now they have a clearer idea on what’s going on. As a result, investors have become more vigilant on platforms that are breaking the rules.

*Ezubao Image : Fortune

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Fintech East : A Look How The Scene Is Flourishing In Asia

Fintech East - A Look How The Scene Is Flourishing In Asia

 

From previous looking at Nordic Fintech I have now turned my attention to the Fintech scene in the East.

Starting with China and the most dominate fintech country in Asia, it seems that a lot in the fintech world have forgot how powerful The Red Dragon actually is. The main players in Chinese fintech include : Alibaba, Ping An Bank, and WeChat, and these guys are way ahead of the West.

If we look at Alibaba’s Alipay and WeChat for example, neither started as a big fintech player or as bank disrupter. In an article published by BANKNXT’s Jessica Ellerm, after both companies mobilised millions of users through their respective platforms, they realised continued growth could be found by moving laterally into other markets, such as banking.

The beauty of such fintech products that the likes of WeChat provide is that it delivers a financial integration experience into a user’s life, from allowing for P2P payments, bank transfers and wealth management mixed with food delivery orders, taxi bookings and mobile phone top-ups. All from a quick swipe.

When I previously said companies such as WeChat are way ahead of the West from that example alone clearly shows it – there hasn’t been a western company that I can think of that has such a streamlined app integration with financial products and other amenity app services.

This could be where the likes of Paypal are going wrong (and need to play catch up). In addition, this multi-integration is ideal for Chinese users since nowadays they seem to skip plastic and go straight to their mobile wallets.

Another key factor that sticks out in China is online scoring. This type of behaviour monitoring system takes into account a person’s social media and e-commerce activities and churns out a relevant score.

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Since January last year, Alibaba’s Ant Financial Services announced a new credit-scoring system that uses information from various Alibaba services like Taobao to determine someone’s credit-worthiness.

The new service which is called Sesame Credit is an example of how far Alibaba has started to dominate the Chinese online ecosystem. Sesame Credit looks at the over 300 million registered users on Alibaba platforms such as Taobao and tracks their payment history from Alipay and other financial services to create a credit score (yes it does sound like something out of 1984!).

Alibaba/Ant Financial make it dominant player in Chinese fintech – its latest round of fundraising gives it a roughly $60 billion valuation after it was previously valued at about $45 billion last year (as mentioned in WSJ)

In addition, Ant Financial is gearing up for a future IPO (WSJ, April 2016. The company hasn’t revealed any future dates, however, they have mentioned in the press that there are plans in the pipeline to list shares on both a the Chinese Stock Exchange and overseas. It is expected that Ant Financial’s domestic IPO to come first, possibly in 2017.

Image source : Ant Financial Twitter

Fintech East : Singapore

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From Beijing to now focusing on Singapore. The Asian country is ranked the 4th largest financial centre in the world and was ranked 1st in the World Economic Forum Global Information Technology Report 2015. As Markus Gnirck and Gerben Visser mention in The Fintech Book in the “Singapore, The Fintech Hub for Southeast Asia” chapter : “The confluence of financial maturity and technological readiness is critical fir the acceleration of the Fintech industry, and naturally points to Singapore as a Fintech Hub.”

So who are the main companies in Singapore that are championing fintech?

  • M-DAQ – M-DAQ – “World Without Currency Borders” as their homepage states. In a nutshell, M-DAQ lets investors trade in any foreign currency denominated into the local currency of their portfolio without having to worry about exchange rates.

 

  • Numoni – Another exciting fintech, Numoni‘s goal is to provide financial services for the 2.4 billion people across the world who survive on less than US$2 per day. Numoni target the “unbanked” are their standout product is an ATM machine called Nugen. Since it was founded back in 2012, Numoni has expanded from Singapore to other Asian countries such as Malaysia, Indonesia, the Philippines, and Hong Kong. Last August the Singapore start-up raised a series B round of US$4.76 million.

 

  • Tradehero – Tradehero – Tech in Asia dubbed them as “one of the best start-ups in Singapore”. So how does Tradehero work? The app allows users to trade virtual money, betting on real-world stock exchange and commodity data. Tradehero is ideal for inexperienced investors who want to learn the tricks of the trade without taking many risks.

There are plenty more fintechs in the Southeastern Asian country and more up and coming companies will will undoubtedly soar as they continue to drive innovative forward and seek to make fintech solutions more efficient and user friendly for consumers.

 

Fintech East : South Korea

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From China via Singapore to now ending today’s fintech trip in South Korea.

Just like many Scandinavian countries that plan to go cashless (as mentioned in my previous blog post). South Korea also has the same aim.

Only about 20 per cent of all payments here are made with cash – among the lowest in the world – according to the Bank of Korea (BOK). (The Strait Times, March 2016).

The Bank of Korea is now aiming for the country to go cashless by 2020, beginning with plans to reduce the production of coins and  is cutting back on issuing paper money.

So how will a cashless society work in South Korea? Currently, a system is being tested for retailers who receive cash to give back change in credit form in a customer’s T-money card or credit card.

If you’ve never heard of T-money before, back 2004 the country introduced a smart card for public transport payments. T-money is a stored-value card with a smart chip for fare deductions and by the end of 2014, T-money was used in 43 million transactions daily in South Korea.

Although this innovative payment has been popular in South Korea it has had its criticisms, for example, some have mentioned that the elderly will struggle to adapt to using cashless payments. Moreover, some are concerned about credit card security and overspending.

Dr Sohn Sang Ho, senior research fellow at the Korea Institute of Finance, told The Strait Times that the Bank of Korea’s plan to go cashless by 2020 is “too ambitious”. He said there is still a big group of older people who rely mainly on cash transactions, especially in traditional markets, and it will take a long time for them to convert to electronic payments.

Sang’s view is that a cashless society is a long term goal, however, it is not possible in the near future.

Fintech East : Conclusion

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In conclusion, the Asian fintech scene is completely different to Europe, as both continents face different regulators and challenges. However, there are some similarities that both the East and West share. For example, The digital revolution has helped break down barriers between countries, and also between industries. In addition, international commerce has helped international payments and has helped an array of start-ups drive innovation forward by creating products that have meant sending payments without fees and sent instantaneously. China has shown just how fast paced Asia has become when it comes to making fintech products and have got it spot on with creating one app services where multiple payments take place, something that the West need to improve on. Although the Asian fintech scene is clearly flourishing, it still isn’t perfect, it still needs a lot more regulations in place.