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Chinese Business Models Are Something Else

Interviewed Company Jiedaibao
URL www.Jiedaibao.com
Interview with Mr Livio Weng, SVP of RenrenxingTechnology Co.Ltd
Interview Friday 30th June 2017:
Subjects: Disruption, China, P2P Lending, Fintech,

An interview and analysis of Jiedaibao, one of the visiting companies to the “2nd Alternative Finance Forum (second Annual Conference on Alternative Finance)” at Cambridge University Judge Business School. (www.jbs.cam.ac.uk)

During the conference, Stijn Claessens, the assistant director in the Research Department of the International Monetary Fund, points out in his speech that China has become the largest market of alternative finance with online lending reached $99.723billion, followed by the US ($34.374 billion) and the UK ($4.164billion) in 2015 alone. Jiedaibao is one of the biggest fintech platforms in China, a social lending platform that enables users to borrow and lend money based on their own social network. On one hand it’s a simple as that. Imagine Facebook offering the service whereby you could post a borrow request and your friends and family could decide to lend to you. It’s Peer to Peer lending. (P2P)

Here’s where it gets interesting. With Jiedaibao people can borrow from their friends families and followers. The borrower chooses the amount, the interest, and the time period of the loan. These are typically short term loans, up to a maximum of 200,000 CNY (Chinese Yuan Renminbi) (£22,000) ($30,000). As borrowers can determine amount raised and period of time and rate of interest, this is in itself an inversion of the traditional model whereby lenders determine the criteria.
Here’s where it gets very interesting…As the lenders can estimate the risk themselves … borrowers can set the terms… it’s entirely at the lenders discretion to lend or not. This reversed or inverted business model appeals to me, it seem highly logical, fair, and do able. Does this exist in the West…? Certainly some companies are edging towards it. Facebook could, in theory, offer this, and rumour is they are at very least exploring it. One slight fly in their ointment is the quality of the Facebook accounts, and validating them, there’s a lot of fake, duplicate, and otherwise unsuitable for financial engagement Facebook accounts out there. There’s also the issue that people have ‘friended’ random people, many if not most of our social networks contain a large percentage of contacts that we actually don’t really know. The average number of Facebook friends is 338. The average number of actual friends… who knows. Maybe a tenth of that, on a good day? To be explored further. China is somewhat different though. In the offline market, peer to peer lending is basically normal. Very common and common sense. Culturally, this is how it’s done, and has been done, for centuries. People borrow from one another, far more so than from a bank. The banking system in China is geared towards supporting the Party, State / Party enterprises, and large companies. This is where the money is. The mass of people aren’t really a concern for the banks. There’s so many of them, and the money is so diluted amongst them, it’s not an enticing proposition to lend to them, or even provide accounts if it comes to that.

So this creates a huge void in the market. In the West, P2P and B2C fintechs have to disrupt existing banks and banking services to gain market share. In China, they don’t. This is a crucial difference and explains, along with an initially hands off attitude to regulation, how Chinese fintechs have become so massive so quickly. Jiedaibao has 130 million users, twice the UK population already.

They have a uniquely Chinese innovation model supported by traditional model, with culturally appropriate features. One being anonymous lending, for example. The lender can be anonymous, to avoid awkwardness and potential loss of face for the borrower. They know the money is lent from one of their friends, but not necessarily who. This has both advantages and disadvantages. It opens up the opportunity in a culturally acceptable way, and yet this has also created opportunity for exploitation of the model by unscrupulous / malicious individuals and lenders. Whilst this problem of what amounts to loan extortion from third parties has received a degree of press coverage, it should be taken in context of the volumes of people on the site. Facebook has it’s problems of corrupt activity across it’s network, as does Twitter, Youtube, Google, and every other tech company. One of the ongoing pain points for all tech innovators is the illegal or unethical behaviour of small percentages of uses.
With Jiedaibao if the borrower defaults, then they would lose their credit rating, and presumably ‘face’, and the this can impact many areas of their lives. The ecology of the community system self regulates to a large degree, one would think. This would be especially true if the online social networks mirrored our offline ones. “because the borrower is borrowing from their network , in the end the lender can resort to the law, in that case their credit rating will be degraded and that credit info will be shared and this will impact their life.”

Again, the quality of the service is largely dependent on the quality of the people in the network. If a true Peer to Peer network is established the probability for abuse is very much reduced. If the network is really a friends + lot’s of randoms + individuals + companies that want to provide the P2P lending as a commercial service = a whole different set of potential problems come into play.

Read the full interview and analysis in full in The Fintech Times in print this July. 

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