Quietly, there are only 29 online lending platforms that have grown savagely in the country. This figure was revealed by Guo Shuqing, Secretary of the Party Committee of the People’s Bank of China and Chairman of the China Banking and Insurance Regulatory Commission, which immediately aroused strong attention, but in just a few years, China’s mutual gold industry has undergone earth-shaking changes.
Since “Internet Finance” was first written into the “Government Work Report” in 2014, the mutual finance industry has ushered in a policy window period. For a while, Internet finance platforms have sprung up like mushrooms. According to the 2015 Internet Finance Development General Report issued by the Academy of Social Sciences, in 2014, the scale of third-party Internet payment transactions achieved rapid expansion, and the annual transaction scale reached 8.08 trillion yuan, a year-on-year increase of 50.3%. There are 575 new P2P online lending platforms, and the business has also expanded to subdivided areas such as bills, factoring, second-hand cars, and supply chain finance. The number of “baby” financial products reached 79, with a scale exceeding 1.5 trillion yuan.
Compared with the rapid development of Internet finance, supervision is seriously lagging behind, which has become a new hidden worry. In July 2015, ten ministries and commissions including the People’s Bank of China, the Ministry of Industry and Information Technology jointly issued the “Guiding Opinions on Promoting the Healthy Development of Internet Finance”, dividing Internet financial services into Internet payment, Internet lending, equity crowdfunding, and Internet funds. The six categories of sales, Internet insurance, Internet trust, and Internet consumer finance have determined the business boundaries of various types of business and the main body of responsibility for supervision.
In order to prevent risk accumulation and rectify and standardize financial order, in October 2016, the General Office of the State Council issued the “Implementation Plan for Special Rectification of Internet Financial Risks”, which carried out classified and special rectifications on third-party payment, P2P network lending, and equity crowdfunding.
Information from the China Banking and Insurance Regulatory Commission shows that as of the end of December 2019, the number of normal operating platforms in the online lending industry has dropped to 343, a decrease of 732 from the end of 2018. As of March 31, 2020, China actually had 139 online lending institutions operating, a decrease of 86% from the beginning of 2019, and by the beginning of August, this number had become 29.
Just in early August, a staff member from a local Internet finance industry association also revealed to China News Weekly that “the industry is clearing up risks. At this stage, we are focusing more on the process of retiring online loans. “And a P2P platform founder from the association also declined the interview request because of the current time is too sensitive.
“The advent of the era of strict supervision marks that the entire Internet financial industry has entered the second half and is developing in an orderly manner, and the reshuffle is also accelerating,” said Gao Yanping, dean of the La Cala Institute.
It is not only P2P platforms that have been shuffled. Some Internet companies that have been keen on various financial licenses have begun to emphasize their technological attributes and use AI, cloud computing, big data, and other technologies to empower traditional financial institutions. After JD Finance and Ant Financial changed their names to “JD Digital Technology Group” and “Ant Technology Group Co., Ltd.”, they announced plans to go public this year.
“The second half of financial technology has arrived!” As early as 2018, Huang Zhen, director of the Institute of Financial Law of the Central University of Finance and Economics and chief economist of the Beijing Mutual Finance Association, made such a judgment. He believes that the current development of financial technology in China, Is based on the big transition from technology penetration to technology spillover.
From finance to technology, from To C to To B
In 2015, when the domestic Internet finance boomed, JD Finance was the first to put forward the concept of “financial technology”. “In fact, China does not lack a financial institution with strong scientific and technological capabilities. JD Digital’s core competence lies in technology. It is to use technology to provide corporate services, including providing scientific and technological services for financial institutions and the broader physical industry.” Said Shen Jianguang, vice president of JD Group and chief economist of JD Digital.
“Its positioning from the beginning is to be technology. This is what attracted me the most.” Shen Jianguang recalled to China News Weekly the scene of joining JD Finance in July 2018 and was still very excited. “From a bank to a technology company, looking at the development of the industry and the operation of the economy from a technological point of view, I feel that my thinking has suddenly broadened, the field of research has also broadened, and the application of digital technology is very extensive.”
“Different from traditional finance, the lending business of technology finance is completed online, and risk control models are built based on scenarios and data. Later, we found that this set of financial practices can actually solve the problem of inclusiveness. Transition to financial technology.” Shen Jianguang said.
In the seven years since its establishment, JD Digital has built a data-driven risk pricing model and applied a large number of digital technologies such as machine learning, artificial intelligence, image recognition, and blockchain on the basis of data to form a strong risk pricing capability. In addition, further mining data advantages, shaping core capabilities in key segments such as anti-fraud, anti-cash, anti-money laundering, and user insight. In November 2018, JD Finance officially upgraded to JD Digital, and financial technology became one of the key business sectors.
Regarding the changes from the name change to the business layout of JD Digital, Huang Zhen believes that the definition of “defined socialization” is biased, but it is a worldwide trend. Huang Zhen said that the two-way integration of finance and technology has formed an innovative field. If it is biased towards finance, it will become technology finance or Internet finance. If it is biased towards technology, it will be called financial technology, which mainly serves finance. This is one and two sides, and its essence is the integration of finance and technology.”
China’s Internet companies first got involved in finance with third-party payment. Today, the entire third-party payment industry has formed a complete industrial chain, including the accounting side represented by banks, WeChat Pay, and Alipay, the clearing and settlement terminals represented by UnionPay and China Net, as well as those represented by UnionPay Commerce and Lakota. The acquiring side provides collection and payment services for individuals and merchants together.
According to the “Quarterly Monitoring Report on China’s Third-Party Payment Mobile Payment Market” released by Analysys in the first quarter of 2020, Alipay and Tencent Finance are still among the top two, with their market share reaching 93.89%, occupying an absolute dominant position.
In just one day, Alipay completed the “fantasy drifting” of “lost and recovered” in the Meituan App. Currently, among the payment options of the Meituan App, Meituan Monthly Pay ranks first, followed by WeChat Pay and UnionPay, while Alipay is folded at the end and is not easy to be found by users.
This wave of operations seems to have obvious intentions. By testing the reactions of Alipay and users, it paves the way for the development of Meituan in the payment market. In this game, Alipay’s position is as solid as a rock, and Meituan does not seem to take advantage.
Behind the turmoil is the fierce battle in the Chinese payment market. The reason why third-party payment has become a battleground for all Internet companies is that, on the one hand, it involves industries with a large number of users. Whether it is e-commerce or life services, it will eventually be implemented to pay, collect, and pay. It involves payment. On the other hand, without payment as a basis, the commercial system of the entire platform will also be greatly damaged. If relying on the support of external payment channels, no platform can establish a complete financial ecosystem. Third-party payment has become the key for enterprises to enter Internet finance.
Taking Didi Finance as an example, the current main way to acquire customers is to provide customized and inclusive financial services to users in the Didi Chuxing platform. From the three perspectives of credit, security, and wallet, Didi Finance has derived Internet credit services represented by Dishuidai, providing property protection services such as auto insurance, and health insurance services such as accident insurance, critical illness insurance, and million medical insurance. Provide customized services such as scenario insurance in different scenarios, and provide users with wallet value-added services such as payment and wealth management.
However, the “lay-to-win” model of third-party payment brings huge risks. Li Wei, director of the Science and Technology Department of the People’s Bank of China, pointed out in an article that commercial banks face the temptation of large amounts of funds deposited by financial technology companies and adopt ” The “over-the-top pass” approach has broken the original four-party model and lost the payment service entrance, resulting in a huge difference in online and offline rates and arbitrage space, and the entire payment market is distorted.
In January 2017, the People’s Bank of China issued a document requiring payment institutions to deposit a certain percentage of customer reserve funds into special deposit accounts for designated institutions. At the same time, cut off the direct connection between payment institutions and banks, and require all third-party payment institutions to access UnionPay or the network system.
With the disappearance of reserve bonuses, third-party payment institutions are facing transformation. Positioning as financial infrastructure is a more common way, from To C to To B. However, from the perspective of the entire financial business, payment has become the basic capability of payment institutions. Users can obtain financial services such as wealth management and insurance through payment. “Scenario + payment + finance” has also become the direction of the financial transformation of some payment institutions.
“From the perspective of the internal development of the industry, more and more institutions are beginning to break away from the financial label and play the banner of science and technology, and financial technology has become the protagonist of the stage. With the gradual transition from the consumer Internet to the industrial Internet, To B has become a new battlefield for financial technology institutions. Gao Yanping told China News Weekly that the industry is looking forward to the deep application of new technologies in the financial sector to cover a wider long-tail group.