Over the past 42 days, 2.6 P2P companies have touched the mines (collapsed) every day on average. Such scandals as delay in payment, run off, capital pool and term mismatch keep cropping up, spreading fear and panic among investors.
“The Great Collapse” in the P2P industry is looming and people see any sign of disturbance as danger. Before July the doubt on P2P industry was like a drizzling, but soon it became an endless and hopeless hurricane.
Among this hurricane stands Luo Chuan, CEO of Daokoudai. “P2P is a lie” often outvoices the practitioners’ opinions in the dispute. Luo is desperate for a change in the status quo because he believes P2P in the real term is a meaningful innovation in the financial industry.
But in the industry mingled with good and bad, a minority of liars have consumed people’s trust on the internet finance. Could the true P2P model be trusted? Gloria Ai, founder of iAsk Media, delves into the four-year-old Daokoudai, a P2P platform dedicated to supply chain finance. Together with the founder of this company, let’s try to envisage the bright future of P2P model.
Is P2P a Lie?
In 42 days from June 1st to July 12th, 108 P2P companies across China touched the mines. Among them are big players with billions of trading volume such as QianBaBa, Niubangold, Yingpiao.com and Tourongjia. 16 P2P companies touched the mines on a single day of July 9th, evaporating the money of tens and thousands of investors.
Instead of being mentioned together with innovation, convenience and technology, P2P has become the sensitive byword of lie. The original intention of P2P model was to solve the information asymmetry in the traditional financial system. But the truth turned out to be that some P2P platforms, due to the lack of supervision, not only failed to solve information asymmetry, but became a wealth cutter.
央行党委书记、银保监会主席郭树清曾明确表示，“ 收益率超过6%就要打问号，超过8%就很危险，10%以上就要做好损失全部本金的准备。 ”而P2P收益率曾经高达20%，即使在稳步下降后，也普遍在10%左右。
Guo Shuqing, secretary of the CPC committee of the People’s Bank of China, president of China Banking Regulatory Committee(CBRC) said, “ if the yield rate is over 6%, it is questionable; over 8% is dangerous; and if it is over 10%, then get prepared for losing the principal. ” But the yield rates of some P2P platforms once had reached up to 20% and most of them remained at about 10% even after the stable decline.
A high-yield investment with low risk never exists and 10% of yield will cost you 100% principal.
Gloria Ai: Why it is sensitive to mention such words as petty loan, lending, repayment and the Internet finance? Why do we use the concept of TechFin? Because as a TechFin，we solve the financing problem of small and medium companies.
罗川：对，这里面的本质就在于，你如果只是个贷款平台，你很可能完全不了解这个钱用来干什么 。科技金融的目的是，希望通过这样一个信息服务，我们能够真正地让金融资金的流动更清晰，减少信息不对称最重要的一个手段， 就是你能够知道资金的流动方向。
Luo Chuan: And the nature of it is that, if it’s simply a loan platform, you won’t know where the money is heading. And the aim of TechFin is that, we hope by offering such information services to fully enable a much clearer flow of the financial capital. To reduce the information asymmetry, the most important means is to know where the capital flows towards.
Gloria Ai: But the financial industry often takes advantage of such asymmetry. So what’s your plan?
罗川：科技改变的实际上是这样一件事情，或者说它力图改变的是这样一个事情： 从信息的发起源头到信息的接受者之间，让速度变得更快，让真实性变得更准确， 至少科技力图这样做。
Luo Chuan: This is what this technology changes or tries to change. It speeds up the flow of information, from the sender to the receiver and makes it more accurate. This is what it tries to achieve.
But the goodwill, while precious, is often swamped by the greed. The 2018 P2P Half-Year Report indicated that the average return on investment(ROI) of P2P in June is 9.83% with the highest yield of 18.00% and the lowest yield of 6.18%.
The nature of internet finance is finance and the core of finance lies in risk identification and pricing.But due to the business competition and the irrational social capital, risk control becomes a useless scrap of paper. If the P2P platform turns a blind eye to the risk control and the investors can’t assume the risks, when the capital chain breaks, the platform can run off but the investor can’t.
What is the Nature of P2P?
Speculators believe science and technology can make money; innovators believe science and technology can change the world.
“I believe science and technology, especially the information technology, is changing a lot of things, including the financial sector.”This is the original intention for Luo starting the company. He tells iAsk that Daokoudai is a financial technology company rather than a petty loan firm.
The traditional financial sector has such problems as high threshold, difficulty for small and medium companies to get financing, and credit risk adverse choice. While the P2P model, like Uber in the financial sector, can allocate the money from the investor to the most suitable financier at the most appropriate price via the platform it provides.
But the tragedy is that when the P2P is reduced to a way of raking in money and pyramid sales, the true P2P model will no longer be trusted since people believe that a fly in the ointment will destroy all.
Gloria Ai:I am quite surprised at seeing you being the founder of a TechFin company, because you are older than most of the founders of TechFin companies I have ever seen. So why do you want to start a new business? Why do you want to make it so complicated in the TechFin sector, full of liars, fools and risks?
Luo Chuan: First, I think that once you become an entrepreneur, you can’t stop starting new businesses, because it is the stamp of your life.And I think people’s life, the economy and entrepreneurs, they are all in a cycle. They are trying to make breakthroughs so as to reach a higher level. This is how the human society makes progress and the same rule also applies to the individuals. So real entrepreneurs are all hardworking.
Second, the biggest motive for me is that, I believe science and technology is changing a lot of things,especially information technology, It is changing a lot of areas. So traditionally, this financial sector is all about information.
If you analyze carefully, you will find that all the financial risks come from information asymmetry.So I hope what I do can bring value to this company and friends of mine and truly help their business. This is what makes my effort special.
Gloria Ai:If Daokoudai is a TechFin company，what is the most basic service it provides?
Luo Chuan:The most basic service is to let those small and medium companies make use of the emerging Internet technology so as to get financing effectively. It is because not only in China, but in the whole world it is hard for those companies to get financing.
11 months since the founding of the company, Daokoudai reached its first 1 billion yuan of trading volume in November 2015. Luo issued the internal letter named Enter the Narrow Door and the Way is Long and these words could nearly become the core of Daokoudai.
Matthew Gospel 7:13-14 said, “for wide is the door and open is the way which goes to destruction, and great numbers go in by it. For narrow is the door and hard the road to life, and only a small number make discovery of it.”
The sentence can be applied to the chaos of P2P platforms. The speculators defraud money in the name of P2P since the door is wide, but they will touch the mines sooner or later; But for those who truly do P2P, the return is not surprising since the door is narrow but the road to life is long.
The liar takes the wide door and the open way while Luo takes the narrow door and the long way.
Who Can Survive
form the Reshuffle of P2P?
Loose credit need and supervision regulation have spawned the P2P spree and it enjoyed rapid development despite the incessant scandals.
According to wdzj.com, the trading volume of those P2P platforms has increased from 21.2 billion yuan in 2012 to 2.8 trillion yuan in 2017, while the loan balance has increased from 5.8 billion yuan to 1.2 trillion yuan in the meantime, increasing 132 times and 206 times respectively.
In this spree, the flaw and foul play of P2P platforms were ignored and bad money drove out good money.
But the climate changed this year. P2P platforms are no longer the byword of “the liar fools the rich fool” and the tougher regulatory has not only cut down many irregularities but also let many fragile P2P platforms touch the mines.
The Internet finance itself is all about capital flow, thus bringing refinancing unavoidable. In this panic market, the outflow of investors’ money on those lawful platforms will nevertheless risk cutting the money flow on those fragile ones.
Seeing the ups and downs of P2P platforms, this industry has entered a new period of confidence rebuilding and regulated development. It is also the pain along the road of growing up.
Gloria Ai:So the biggest uncertainty of this sector comes from the policy？
罗川：对，现在的话， 最大的不确定性是在政策监管这个不确定性上 ，不管是中国还是美国，监管的政策都是对这样一个市场影响最大的。在美国发展最大的Lending club，他们其实也是在符合了监管之后才发展得很快，整个借贷的余额才能够上升得很快。监管清晰了之后，它会明确哪些是合法的，哪些是不合法的，那么不合法的就要慢慢退出，合法的可以得到支持，可以继续去做。
LuoChuan:Yes, for now, the most uncertain factor comes from regulations . Be it in China or America, regulations always have the largest impact on the market. Lending club, the biggest player in America, has enjoyed the most rapid development only after it has conformed with regulations. Their debit and credit balance is skyrocketing. Once uncertainty is taken out of the picture, what is legal and what is illegal become very clear. Then the unlawful companies will gradually die out while the lawful ones will get the support to move on.
Gloria Ai:Where will you bet for the future？
Luo Chuan:I will support the real economy and support the people uncovered by this traditional financial sector. But we need an upright mind to do this job.
Established in the tide of P2P in China, Daokoudai has experienced ups and downs over the past 4 years. There is no need for Luo to catch any wave since Daokoudai will always stay on the wave of the market.
The financing need from millions of small and micro business and the individual still remains. P2P platforms won’t be obliterated due to this reshuffle. Those which can stay after the hurricane are the survival of the fittest.
The hurricane is coming; survivors are winners.