How P2P lenders can thrive under China's regulations
Dianrong has found the right balance under new rules, says company's co-founder
SINGAPORE China's increasingly competitive peer-to-peer marketplace requires players to understand government regulations and align their strategies accordingly, said Kevin Guo, co-founder and co-chairman of Dianrong, which specializes in making small loans over the internet.
The company, founded in 2012, is looking for business opportunities in Southeast Asia. It is also planning an initial public offering, but Guo is not saying yet where or when this listing will happen.
The interview was edited for clarity and brevity.
Chinese regulators are more tightly scrutinizing online lending. How do you think new regulations on deleveraging will affect the country's P2P business landscape? Up to 2016, when the P2P industry was growing super-fast, regulators encouraged innovation, new business models and entrepreneurship. Then things changed. Many P2P platforms had a lot of default cases, and some platforms were too aggressive. They wanted more business volume and they took on some risky assets.
Too many platforms don't have the capability to control the risks, and most of these have disappeared in the past few years. So the government saw the problem. The government cares about risks [and wants to see problems get fixed]. They ask you to predict risks and ensure all possibilities. So that means innovation [will be] hard in the next few years.
On the bad side, you are limited in business scope. But the good side [is that] the government helps you to control risks. Also, they control the leverage of the P2P platform.
How do you think artificial intelligence, machine learning and other new technologies will change China's P2P market? AI, machine learning and big data, of course, are helpful. But they are not the key factors that will make a P2P platform succeed or not. As for AI, I can see it can help with anti-fraud. Also, we can see AI and big data helping in marketing. AI can help you to get one group of people who [are] your target at a lower cost. For AI and big data to control the default rate or delinquency rate, though, it may be helpful but not that obvious. We will continually research how AI and machine learning can help us.
We have already set up a joint venture with Foxconn and we have some blockchain solutions for supply chain finance. For small and medium-size enterprises, if the blockchain can help us to build profiles for these companies or small merchants, we can then more easily give ... business loans to them.
What is the most important factor in China's P2P marketplace? I think the most important thing in China is understanding regulations and policies. So that's the key factor. Even if you succeed in business, you still should wait for the final decision from the government to see if it is allowed or not. That means you should balance business success and compliance success. So if you can find a way and your strategy is correct, the direction is right and you will not waste your time [adjusting] your direction.
Could you tell us about your overseas expansion plans? We are looking for the opportunity to go public but we don't have a timetable. Going outside of China is a big challenge, [but] we are preparing for it. I have two fintech funds to help startup companies grow and expand their business in Southeast Asia. We have one team in Indonesia, [where] we have a business already running. And we are looking for opportunities in Vietnam, in the Philippines, etc. That's our strategy.
Interviewed by Nikkei staff writer Justina Lee