By Eva Xiao
2016 has not been a good year for China’s peer-to-peer lending industry. The year began with the collapse of Ezubao (e租宝), a P2P lending site that swindled 50 billion RMB (about $7.5 billion USD) from almost a million investors. Since then, the scandals haven’t stopped.
Kevin Guo, co-founder of Dianrong.com
Part of it has to do with how fast China’s P2P lending landscape has developed over the past few years. According to data provider Wangdaizhijia, between 2012 and 2014, the number of P2P lending platforms in China jumped from 200 to 1,575. Today, there are more than 4,000.
In a country where the majority of citizens have never borrowed money from a bank, it’s not surprising that companies have jumped in to fill the gap for consumers and small businesses who need loans. Last December, regulators put out a draft of policies for P2P lending companies, such as prohibiting platforms from directly handling or managing funds (link in Chinese).
Founded in 2012, Dianrong.com (点融网) is one of the earlier players in China’s P2P lending industry, in addition to Renrendai (人人贷) and Yirendai (宜人贷). The company was started by Kevin Guo and Soul Htite, the former CTO and co-founder of Lending Club, a P2P lending company in the U.S that went public in 2014. According to Dianrong.com, the platform has processed over 1.2 million RMB in loans since launching.
TechNode sat down with Kevin Guo to discuss the current state and future of China’s tumultuous P2P lending industry.
1. How have scandals like Ezubao affected P2P lending companies in China?
Honestly, in the long run, this is good for startups, especially companies that follow the standards. Now there’s 4,000 to 5,000 [P2P lending] companies. In the end, there might be less than one hundred left. Under these circumstances, you have a huge space in the market that can be opened up to companies that follow the rules.
So in the short term, we’ve been affected, but […] for big platforms, it’s manageable. For example, when Ezubao collapsed, there was a one to two week fluctuation on our platform. But afterwards, our transaction volume […] recovered to its normal rhythm.
Most of our clients – more than 90% of them – are old clients. They’ve already experienced our platform before, they understand us. We already have a strong level of trust with these clients. In addition, when these bad platforms collapse, people discover that there’s still a demand for investment. There’s still an enormous demand for profiting from investments.No matter how many scandals happen, […] there will still be demand. […] Look at stocks, for example. Their value is so low, yet there are still so many people speculating on stocks.
[Chinese regulators] have made a lot of restrictions. They’re not allowing us to do advertisements anymore. But I think at their core, they’re still trying to encourage this industry.
2. What impact has the Ezubao scandal had on the latest draft of P2P lending regulations in China?
When the internet finance industry was developing quickly [last year], the Chinese government and even local governments were very supportive of [the P2P lending] business model. They gave us a lot of support.
But after the Ezubao incident happened, the government’s attitude changed. There are some illegitimate companies that might not even be P2P lending platforms – they just call themselves that – that have caused a lot of confusion for local regulators, who start to question whether or not they should support the [industry]. […] A lot of people who are not familiar with finance were even more afraid and confused about what happened.
Under normal circumstances, [a new draft of policies] would have been released this year, but Ezubao disrupted the whole process and changed everything. […] From what I’ve heard, there will probably be a deep review of the draft in the first quarter of next year. Some of the rules will probably see some big changes.
3. In an industry with thousands of competitors, what kind of room is there for business development?
The scope of business for a lot of P2P companies doesn’t cover the whole country. […] Some regional platforms only service the capital city of a province or some small cities in a nearby province. In the new business models that we’ve observed in the industry, [companies] are moving to third tier, fourth tier, even fifth tier cities to open their businesses. In those places, opportunities for financial services are even bigger.
In the next two years, we think tiering-down (comment: is there a term for this?) will be a common phenomenon. This includes BAT [tech giants]. They’re all doing rural finance, whether it’s loans or investment or financial management. JD is doing it too.
I think there’s still a lot of room for development in this industry. […] There are all kinds of opportunities that can be dug out of different verticals. P2P lending is just one small piece. […] Blockchain, robo-advisors, data mining, machine learning, online insurance – there’s a lot of room for imagination.
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Source:: The Impact Of Ezubao On China’s P2P Lending Industry: Q&A With The Co-Founder of Dianrong.com