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July 21, 2016

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Pathfinders at crossroads of finance, tech

FINTECH, which is the merging of finance and technology as exemplified by PayPal, was the subject of the recently concluded LendIt Conference in Shanghai.

The two-day meeting of some 1,000 global players in fintech highlighted growing interest in the potential of the Chinese market, recent high-profile scandals notwithstanding.

Shanghai Daily sat down with two key speakers at the forum, to discuss fraud prevention, regulatory concern and the future of the industry.

Jason Jones

Jason Jones is co-founder of the LendIt Conference and the former founder of venture capital firm Highstep, which invested in more than 200 global fintech start-ups.

Jones said China, as the next horizon for fintech companies, needs to build a regulatory framework to prevent swindlers from contaminating the industry. Only about 200 companies will survive from among the 2,000 once in the business. Jones said that bodes well for the industry going forward.

Q: The biggest problem for Chinese online lending business is the high incidence of fraud and illegal practices. What do you see as the fundamental solution to cleanse the market?

A: Dealing with fraud is really challenging. If you try to regulate all fraud, you regulate innovation and there’s no advancement. You have to find the right level of regulation that actually reduces the level of fraud but still encourage innovation.

The two things that really should be focused on are financial literacy and access to capital. Financial literacy gives means having the capability of managing one’s own debt levels. You have to give access to lower-cost credit to poorer people, thus stimulating the consumption economy. I’d like to see financial management apps that educate people about finance. Some companies pop up ideas that try to score investors based on their understanding of financial markets, and then match that investor and their risk-and-reward appetite with the appropriate investment. That’s a fascinating market development trying to respond to the consumers’ needs.

Q: What do you think of the current environment, where the sector is largely left to self-regulation?

A: I’m definitely a strong proponent of self-regulation. But that can only get you to a certain point and then governments have to come and step in. That’s what happened in the UK, where three leading companies, Zopa, Ratezetter and Funding Circle, formed a strong industrial association that proposed a framework, which later was adopted by the government as guidelines. In China, the problem is that there are millions of associations, but none has developed a framework with the strength to take the industry forward. The China National Internet Finance Association, set up in Shanghai in March, is a great hope. We shall wait and see how that comes through.

Q: CreditEase’s Yirendai was China’s first peer-to-peer lender listed in New York. How do you see investor response to that and the possibility of other IPOs by China’s fintech companies?

A: Yirendai’s share price crashed from US$10 to US$3 after the Ezubao fraud case, but it had nothing to do with CreditEase. So the shares eventually perked up and just crossed US$20 this past week. Compared with other traded fintech companies, like LendingClub or Square, Yirendai is the best performing fintech company in the world right now, driven by a competitive investment channel and a proper company management.

The potential listings of Ant Finance, Lufax, Zhong An Insurance and JD Finance could completely redefine fintech for the world because those four would be the largest if they go public. All of a sudden, China would be the destination for all fintech companies.

Q: What competitive edge do Chinese fintech companies have?

A: You can put all the companies that will survive in one of four buckets. First, there are technology-driven companies like, which is good at building an online-based transaction business. Then you get capital market-oriented companies, like Lufax, which know how capital flows across the world are able to capture some of it for themselves. The next type could be credit-underwriting specialists, like China Rapid Finance, which price investment risk. And the fourth category is generalist entrepreneurs, like CreditEase, which combine the strengths of the three others.

Soul Htite

Soul Htite is founder and chief executive officer of China’s peer-to-peer online lending platform He was formerly head of technology at LendingClub, the first peer-to-peer company to be listed in the US.

Dianrong is eyeing potential an initial public offering in Hong Kong or Shanghai within two years. The company is expected to announce an unsecured consumer finance product with heavy investment in August and set up a free blockchain network for partners in exchange for transaction data.

Q: What’s your strategy in utilizing blockchain technology? How would it benefit your business and your clients?

A: One of the biggest issues we try to resolve in the financial industry is the concept of trust. Where there is a contract or transaction, there is the problem of trust. Blockchain offers multiple things, but what we like the most is that it provides an immutable information system. Now we are trying to provide a blockchain network to our partners for free, and get data in return from those customers to help build our own online lending business and customer verification. In our view, the purpose of Fintech is not to make money from interest rates, but is to give technology and let others use it.

Q: Do you consider that technology as the most important factor driving Dianrong and other Chinese fintech companies? What other factors matter?

A: Technology plays a big role, but the product’s definition also plays a very important part, since you have to understand not only what customers want right now, but also what they will want next year. In an industry that’s moving so fast, we need to be able to predict needs in a couple of years. Also we need to understand what regulators are thinking, since you don’t want to make heavy investment and later find yourself contradicting the law.

Successful companies are the ones that are going to be open to working with others and not seeing each other as competitors. People get scared when they hear that there are more than 2,000 peer-to-peer companies in China, but in fact, there are only about 200 left doing any real business.

Q: How do you view the perception that online lending platforms are hotbeds of swindles and usury in China?

A: Some practices, such as the recent one using students’ nude photos as collateral, are illegal. Not everyone deserves a loan and borrowers should be able to show the capability of repayment. In terms of issuing loans to student, the platform has to work closely with their parents and make sure that lending is not a charity but a business. But that doesn’t mean we can’t develop businesses of consumer finance. They just have to be based on frameworks and mechanisms that make sense.

Q: What is consumer finance that makes sense in your definition?

A: For example, we are happy to give loans to lawyers who don’t speak English but want to pay for expensive language classes because we know once that person has finished the class and becomes fluent, his salary will go up by 50 percent. Or people living in third-tier cities who want to take on the expense of buying a computer for the purposes of study. In China, there’s a huge market that deserves our help to develop. We just started to issue unsecured personal loans and have to collect more objective risk models to make sure of the implementation.

Q: You mentioned a potential IPO of Dianrong within two years in a previous interview. Where are China’s fintech companies headed in the capital markets?

A: Bankers are approaching us to do the same as Yirendai did. We are ready to do an IPO in 12 to 24 months, but to be honest, we don’t want to be distracted from building our business in 2016. We started Dianrong when there were 3,000 companies in the industry. Now there are only 200. There were 1,600 to 1,800 group-buying companies several years ago. Now there is only one. So mergers and acquisitions between online lending platforms or fintech companies are sure to happen in coming years.


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