Babbitt Column | From Highlights to Fall: P2P Brings Revelation to Defi

Since 2018, the economic downturn cycle and the financial de-leverage superposition of regulatory policies have tightened. P2P companies such as “Group Loan Network”, “Tang Xiaoxuan” and “Zhengda Jinfu” have been violently thunderous, causing industrial earthquakes. The online lending industry is experiencing the risk of a total annihilation; in contrast, defi decentralized lending projects in the blockchain sector are in full swing, shouting to subvert traditional financial institutions such as banks. We used to have investment and layout in the field of Fintech. For the P2P industry, I saw him from the Zhulou, and saw his banquet guests, seeing that his building collapsed! Today, talk about the rise and fall of P2P and the enlightenment of Defi.

P2P online lending, that is, individual lending to individuals, there is no middleman (bank) to make a difference. Using financial technology to subvert the slogan of the bank, P2P began to shout a few years ago, and the blockchain project is not the first. In business models, P2P companies are closer to subverting banks. P2P companies do not have a deposit reserve requirement, nor do they have to comply with a series of regulatory requirements such as the capital adequacy ratio and loan-to-deposit ratio of the Basel Accord. Especially in the barbaric period of development that has not been kept up to date, P2P companies are not supervised. It is much more flexible and free to operate than a bank. As a media loan information intermediary, the pure P2P company has indeed removed the lending intermediary of the bank.

At the high-light moment of P2P company, the unicorn company was born in the industry. The launch of the online hotel loan company in the luxury hotel was one after another. They put advertisements in the popular online drama and the advertisement of the building elevator was bombarded 24 hours a day. . When crazy, perhaps one-third of listed companies are laying out P2P online lending business. The most amazing thing is that in May 2015, the Dorun shares (stock code 600696), which is mainly engaged in real estate business, suddenly announced its name change (according to the homonym of P2P). The company's stock price ushered in several daily limit in a piece of voicing and ridicule!

The rise of P2P

1. The tide of interest rate marketization

On July 20, 2013, before the People's Bank of China announced the full liberalization of financial institution lending rate control, high-quality state-owned enterprises and large companies with sufficient collateral could easily obtain cheap loans from banks, while small and medium-sized private enterprises have been experiencing financing. Difficult to finance the problem. Some state-owned enterprises get cheap loans from banks, and they transfer them to private enterprises in the form of loans.

Under the temptation of real estate companies, local financing platforms and other companies willing to pay high interest costs, bank funds began to use large-scale channels such as wealth management products, trust loans, and entrusted loans. The “shadow banking” has accumulated a large number of voices. The scale. In 2012, the bank's new RMB loans only increased by 10%, but the total social financing volume maintained a high growth rate of 23%. “Shadow Bank” contributed.

In 2013, financial disintermediation was a very high-frequency word in the financial media. What does it mean? It means that the supply of funds bypasses the media system such as commercial banks and is directly delivered to the demand side and the financiers. It is the same as the financial decentralization that we are currently talking about in the blockchain industry.

In the same year, "Yuebao" was born. As early as the 2008 annual meeting in Ali, Ma Yun threatened that "the bank will not change, we will change the bank." The birth of “Yuebao” triggered the “various treasures” of Internet finance, and the deposits of residents left the bank like ants moved. The marketization of deposit interest rates began quietly without official announcement.

The marketization of interest rates is the inevitable result of the development of the market economy to a certain stage. The lenders of funds have the demand to pursue high returns, and the financiers also have the willingness to bear high interest costs. Under the background of such financial disintermediation and interest rate marketization, P2P came into being and ushered in rapid development. P2P lending funds lenders and financiers directly trade, eliminating the role of the intermediary bank, is an important force for financial disintermediation.

2. Mobile internet technology and good network infrastructure created by third-party payment channels

Third-party payment companies, the most common daily contact is Alipay and WeChat payment. In fact, the central bank has approved 289 third-party payment licenses. According to iResearch data, Alipay and WeChat Pay have long occupied more than 90% of mobile payment market share. You may ask, how do other payment companies survive?

In fact, third-party payment companies have done a good job, such as working with P2P businesses to support many third-party payment companies.

In the first stage, the third-party payment company only acts as the payment channel of the online loan company, providing a payment interface, and the user's deposit and withdrawal is very convenient. The simple payment channel, the user's deposits and withdrawals are first collected into the P2P platform account, which essentially forms the fund pool business, and is also prone to the risk of P2P donation. In the second stage, in addition to acting as a payment channel for P2P companies, the payment company also provides third-party depository for P2P companies, that is, setting up virtual secondary accounts for investors and borrowers to achieve clear and clear separation mode. The P2P platform does not touch the funds and avoids the formation of a “fund pool.” Since the third-party payment company does not review the identity and credit of the borrower, it still cannot prevent the platform from happening.

Although the cooperation between third-party payment companies and P2P does not prevent the self-inflation of P2P platforms, the convenience of third-party payment and the popularity of 4G and mobile internet technologies have greatly promoted the development of P2P companies.

3, cheap data and mature algorithms make big data wind control shine

China's huge population base, as well as the ever-increasing number of Internet users, has retained a huge amount of online data. Baidu Li Yanhong said:

"Chinese people can be more open to data privacy and are willing to use privacy for efficiency."

Although the remarks of the remarks triggered a buzz, they revealed the facts of the Chinese data market in the past few years. Massive data accumulation and algorithm advancement, the big data industry has once become a popular industry, big data technology and financial integration, allowing P2P to shine in the process of accurate customer acquisition, big data risk control, and post-loan collection.

Especially in the P2P online lending industry, they abandoned the traditional asset-backed and secured asset-heavy model, and as a pure credit lending, they rely more on data risk control. They judge the repayment ability of the borrowing user according to the user's online consumption habits (e-commerce data), academic qualifications (learning network data), past borrowing records (credit card records), communication records (communication data), and the like. The approval of the loan amount effectively reduces the risk of bad debts.

From glory to big defeat

The essential reason for the P2P rout is that P2P is not a decentralized operation. Many online lending platforms cross the border as information agents. Most of the P2P platforms that have been involved in the accident have engaged in the pool of funds, bear rigid redemption, and even issue false-inclusive self-inflation (appropriation of funds).

For example, last year’s “Tang Xiaoying” of violent thunder, using false debts, fictitious borrower information, false propaganda and other means, promised 5% to 24% of annualized income, through super-borrowers, transfer of income rights, targeted entrustment, etc. More than 2.77 million investors illegally raised funds (the following currencies are all RMB) 59.357 billion yuan, and the total amount of deposits was 16.045 billion yuan, of which 11.604 billion yuan was used to pay the pre-investor's principal and interest. By the time of the incident, the actual economic loss of more than 110,000 victims was 5.04 billion yuan. Recently, Shanghai Zhengda, who had just violently thundered, actually surpassed Dai Zhikang to surrender. It is said that there are illegal activities such as setting up fund pools and misappropriating funds in the company's operation process, and it has been unable to pay.

1. Fund pool, rigid redemption, self-inflation, fake bids, etc. have hit the industry confidence

The insurance company has a huge pool of funds, and the outflow of funds and the inflow of funds from the new policy balance it. Banks also have huge pools of funds, outflows of loans and inflows of deposits, making this pool of funds relatively stable. In the pool of funds, insurance companies can be used to invest in investment income, while banks are used to lend and earn interest margins. The cost of insurance companies and bank funds is very low, and when there is a run or failure to pay, the state's forces will intervene. Therefore, insurance companies and banks are legally operated pools.

But the P2P business, as a supplement to traditional finance, is only a flaw in the past when banks have not seen the business. According to the author's many years of market observation, if the name is not "Zhao", the business of the fund pool will be dead.

Guo Shuqing, chairman of the China Banking Regulatory Commission, once said:

“When the yield of wealth management products exceeds 6%, the question mark is required. More than 8% is very dangerous. If more than 10% is prepared, it is necessary to make a loss of all the principal.”

Most of the platforms involving funds pools and fake bids attract investors with high interest rates and high rebates. You are interested in the interest of others, but people are staring at your principal.

2. The nature of subordinated debt business and competition from traditional banking and financial technology

Compared with traditional bank credit business, P2P business has higher capital cost and better customer quality. Therefore, P2P lending is essentially a subordinated debt. In the overall economic downturn, the first risk of bad debts is definitely the subordinated debt of the P2P business. Coupled with the fragile industry confidence, there is a slight turmoil and the risk of a run may occur.

In the past, traditional banks paid more attention to offline risk control, and the long tail users of P2P services were basically ignored. However, in recent years, commercial banks have begun to awaken, "financial technology" has become a "standard", not only accelerated the cooperation with third-party big data risk control companies, a small-scale commercial banks have set up their own financial technology subsidiaries. Big data risk control technology is no longer something unique to online lending companies.

Have lower capital costs and blessings of big data risk control technology. In recent years, traditional banks have continuously seized the market of P2P companies. Compared with banks, P2P companies have no advantage, and with the pressure of supervision, from the P2P company's financial reports, most of them have begun to transform into loan and consumer finance.

3, before the supervision is lagging behind, the risk of disposal afterwards is one size fits all

The P2P online lending industry has been in a state of barbaric growth. The threshold for entry is extremely low, and the quality of employees is not high. Previously, the attitude of supervision seemed to be the development of post-regulation. According to the data of the online loan home, in 2015, there were tens of thousands of P2P platforms in China. Since 2015, the problem platform has gradually increased. As of August 2019, there were 2,850 problem platforms, and 3,096 transformation and shutdown platforms, the number has been reduced by nearly half, and it is still decreasing.

Since 2019, the regulatory authorities have mostly adopted a scale of pressure reduction to guide the P2P platform to a virtuous exit or transformation as the main melody. According to the "Notice on Doing a Good Job of P2P Network Lending Risk Special Rectification and Reconstruction and Acceptance Work" issued at the end of 2017, the P2P filing that should have been completed in June 2018 has been postponed until now, and no platform has been completed in the industry. From the current situation, P2P filing has been in the foreseeable future. Perhaps regulators believe that the P2P industry has fallen to an unrecoverable level and is not worthy of regulatory endorsement. Some insiders are pessimistic that the number of P2P companies that will eventually remain in the future may be the same as that of current licensed consumer finance companies (more than 20).


(Source: Online Loan Home)

The P2P from the high light moment to the rapid fall is the result of the internal and external factors. The internal cause is the congenital subprime nature, the weak internal control, the fund pool and the platform self-inflation; the external cause is the deterioration of the macroeconomic environment, plus the bank's financial technology. Equipped with a competition to reduce dimensionality. Finally, the supervision of high pressure accelerated the failure of P2P online loans.

Does Defi calculate Pratt & Whitney Finance?

The reason why P2P can develop to such a large scale is that the inclusive finance has obtained the acquiescence of the policy to some extent. P2P lends money to people who did not enjoy bank lending services, although they have to pay higher interest costs. Some of these borrowers may be small and medium-sized private enterprises, and some are small business hawkers. P2P does have social significance.

Defi (unless otherwise stated, Defi mainly refers to decentralized lending) can it be considered inclusive finance? At present, Defi is only an agreement or platform to provide liquidity to speculators of digital currency. Defi's target users are also veterans of the currency circle, and the target users are too narrow. At present, there are not many people investing in encrypted digital currency, and it is rare to be able to operate Defi. Therefore, from this perspective, not a big track, Defi's future size may not be too large. How Defi serves the long tail crowd and creates more value for the real economy, and practitioners still need to continue to explore.

How does Defi do anti-fraud and improve compared to P2P?

Regardless of how technology transforms finance, financial technology is still financial in nature. Although P2P business can introduce third-party depository and sub-account management, reduce the risk of running the volume, and use big data risk control to reduce external fraud to a certain level, thus effectively reducing the risk of bad debts, but still can not prevent the platform itself. Melt into evil.

Unlike P2P companies that use big data to control anti-fraud, Defi does not have a KYC process. For example, the Makerdao project stable currency DAI is generated by using excessive collateral (usually 150% or more) ETH to generate stable currency DAI. The anonymity of digital currency itself makes Defi Projects cannot use big data to increase trust. Therefore, the Defi project is also difficult to achieve differentiated interest rate pricing. In addition, the use of funds for over-collateralization is less efficient. From these two perspectives, Defi's decentralized lending is actually quite rigid. In addition, the immaturity of cross-chain technology, mortgage assets are mainly a single asset such as ETH, Defi has many areas for improvement.

What improvements has Defi decentralized lending compared to P2P? Realized asset custody and smart contracting for daily mark-to-market. This is a huge improvement, because P2P's third-party payment channel interface and bank depository are a very large cost. Of course, although smart contracts can avoid the platform to do evil to a certain extent, but also need to prevent hackers from doing evil, both good and bad.

V God also warned that people should not be strongly encouraged to put money into the DeFi agreement, mainly because these agreements have not been tested and may fail.

Written in the last revel

Whether it is P2P or Defi decentralized lending, it is essentially financial lending. No matter how the form changes, it never circumvents the three core issues of capital cost, bad debt risk, and run-off risk. P2P uses long-tailed users to use inclusive finance. Ways to make up for the problem of excessive capital costs, use big data risk control to solve the bad debt risk caused by external fraud. But it can't solve the platform's own fraud, and there is no good solution when the run-off risk occurs. If there are no good solutions to these three problems, subverting the bank is just a utopian vision.

Defi is still in the early stages of development, and everyone's expectations for Defi are also great. Once P2P was also the slogan of everyone's pursuit, and doing it will change the taste. I hope Defi can learn some lessons!

Author: Wan Tong CHAN Ho-nam