China’s peer-to-peer (P2P) lending industry is going through a challenging time, as regulators ensure that companies follow a list of over 100 new rules. The rules have been put into place to eliminate the fraudulent or poor business practices that have plagued the industry since its inception in 2006. Many of these firms have struggled to reduce customer credit risk, lacking sufficient financial and technological expertise. But some companies have continued to perform well despite the chaos, and one of these is Fincera, which lends to businesses.
Fincera Inc. is one of the first companies in China to make loans to trucking businesses online. The company operates a P2P lending platform called “Qingyidai” that continues to thrive despite the turbulence in China’s P2P lending sector. As hundreds of P2P lending firms are shut down and/or bailed out due to China’s current regulatory and economic environment, the few that persist stand out. For Qingyidai, the secret to survival is in its risk control methods, which combine technology with traditional risk control methods.
I sat down with Yonghui Li, chairman of Fincera, at the Lendit Conference last week in Shanghai to learn how his company has continued to perform well despite the high numbers of firm failures in the P2P lending industry.
First, some background on the company. Fincera has been in business for 24 years and operates over 20,000 service outlets across China. Fincera’s lending platform Qingyidai, also known as Ceravest in English, serves small businesses in the trucking industry. This is a niche market that has less competition than, say, the market for consumer finance auto loans.
Loan transactions occur online where lenders can browse loans for funding through the Qingyidai website or mobile app. Customers are referred to Qingyidai by small truck leasing companies, small truck owner-operators, gas stations, and maintenance shops. The financial services provided allow the establishments to carry on their own day-to-day operations. Such customers usually require higher levels of capital than do regular consumers, so risk control is essential.
The company begins its risk assessment early on to greatly reduce the chance of default. China’s Ministry of Transportation requires trucks to install GPS tracking, and Qingyidai may acquire the data for risk assessment. The company may locate the truck for collection if the borrower is delinquent. Some truck manufacturers also install remote control capabilities that allow Qingyidai to remotely limit a truck’s speed or cut off a truck’s ignition through an online portal.
I asked Li how Qingyidai is unique in controlling for risks. He answered:
Risks are fundamental characteristics of financial markets. Our risk management process is based on over 20 years of experience in the financial sector. They key to our success is that we start the risk management process as soon as we have contact with the customers and all along the way, and it’s especially important to manage these risks in the face of the current financial market turbulence. We actively seek customers who are willing to pay back their debt to lower the rate of bad debt and default.
He noted that “technology has made it much easier to identify high-risk customers and to extend loans to customers who are creditworthy and in need of funds.” Li said me that the most important thing is to combine this technology with industry experience. Risk control is key, however, not only to reducing the chance of delinquencies but also to applying lower interest rates to better serve customers. Risk control, in other words, keeps the company competitive.
This is something that so many other P2P lending firms have failed to grasp. A number of firms now facing closure have been found lacking in sufficient technology or experience, and are unable to compete with firms that have such resources. Li views these failing start-ups as irresponsible. These companies were often started by those with little financial risk management experience.
Li believes that after the turbulence in China’s P2P lending industry ends, his company will be left with an even larger playing field than before. As some of the less competitive firms rapidly shutter, Qingyidai will continue to receive funding requests from its greatly underserved niche market, and the firm will be faced with greater upside potential.