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EasyLoan: Growing Stronger
A Feasible and Innovative Business Strategy to Achieve Sustainable
Growth and Greater Market Share in the P2PL Industry
In Partnership with Tsinghua SEM & CreditEase,
The 2014 MBA Case Competition
Tsinghua Global © 2014
2
SHANA PENNA is an MBA student at Tsinghua SEM.
Shana has a degree in Comparative Politics from the
University of Massachusetts, and over ten years of
experience in the financial industry. She worked for a
pension management firm that grew from 100 to 500
million dollars in assets in five years, and built a
company that manages insurance and investment
products. As a consultant, Shana has developed
successful business plans for other companies.
JASMINE LYNN is an LL.M. student at Tsinghua Law
School. Jasmine has a degree in law from Cambridge
University, UK. She served as the vice-president of the
Cambridge Law Society and is a member of the British
Mensa Society. She has worked for two international
law firms in London and clerked for a High Court Judge
in Wales. Jasmine has years of experience as a
journalist and PR specialist, and currently works for the
Beijinger.
CHRISTOPHER CAMPBELL is an LL.M. student at
Tsinghua Law School, and J.D. student at University of
South Carolina, USA. Chris has degrees in Marketing,
HR Management from the Darla Moore School of
Business, and a minor in Chinese Language and
Culture. Chris has also studied International Law at the
Gray’s Inn Court in London. Chris has experience as a
strategic marketing and management consultant, and
has successfully started a beverage service company.
YAHYA YUKSEL is an LL.M. student at Tsinghua Law
School, and J.D. student at University of Arizona, USA.
Yahya has degrees in Marketing and Management
from the UofA Eller Business School, and studied
International Business at the University of Virginia.
Yahya has experience as an associate at large US
corporate law firm, legal counsel for tech startup
companies, account manager for an international
advertising agency, and congressional aide for a US
Representative. [email protected]
3
Table of Contents
Executive Summary…………………………………………………………...…1
I. MARKETING AND ADVERTISING……………………………………....2
A. The Problem…………………………………………………………….2
B. Causes……………………………………………………………………2
C. Solutions…………………………………………………………….…...4
1) EasyPay………………………………………………………...……5
2) EasyPay Credit Line………………………………………………....6
3) Celebrity Endorsements…………………………………………..…8
4) Strategic Partnerships with Banks………………………………..….8
D. Additional Marketing Concepts…………………………………………9
E. Conclusion………………………………………………………...…….10
II. COMPETITIVE ANALYSIS……………………………………………....10
III. DATA-SHARING…………………………………………………………11
A. Introductions…………………………………………………..………11
B. Opportunities………………………………………………………….12
C. Challenges…………………………………………………….………12
D. Solutions……………………………………………………...……….14
IV. REGULATIONS………………………………………………………...…15
A. Introduction……………………………………………..………………15
1) Current Legislation…………………………………………………15
2) Preparing for Change……………………………………….………16
B. Comparative Analysis …………………………………………….……16
1) The US………………………………………………………...……17
2) The UK…………………………………………………………..…18
C. Proposals…………………………………………….…………………18
V. CONCLUSION……………………………………………………………20
Executive Summary
Founded in 2006, CreditEase has grown to become one of China’s largest peer-to-peer lending
(P2PL) firms; EasyLoan reports an average transaction value of 300 million RMB every month.1
However, despite the company’s success, there still remains the potential for growth in the
booming P2PL market. Our business strategy for EasyLoan, and its parent company, CreditEase,
is focused on four main aspects - marketing and advertising, competitive analysis, data-sharing
challenges and regulatory concerns.
As P2PL products become increasingly homogenized in this competitive market, gaining a
significant market share and attracting consumers is paramount. Thus, Part I outlines three main
approaches to solidify the CreditEase brand in China and, in particular, combat the concerns over
a lack of borrowers. Firstly, the increasingly mobile and tech-savvy consumers provide
opportunities to utilize mobile payment methods to put CreditEase and EasyLoan in as many
retail locations as possible, using our innovative EasyPay platform, a mobile e-wallet. Secondly,
we suggest utilizing the celebrity culture in China to lend more credibility and familiarity to
CreditEase and EasyLoan. Finally, this section will illustrate how internet finance can avoid
“colliding” with traditional finance and instead “combine” with financial institutions to expand
its consumer pool.
Part II of the report will focus on CreditEase’s potential to increase its market share through both
maximizing its current data collection methods and assisting regulators’ development of a
standardized credit system. There are some complications with the current P2PL system and the
aforementioned topics; however we provide guidance on how to enhance CreditEase’s position
in these areas.
In Part III, we briefly carry out a comparative analysis of the industry leaders. Finally, in Part IV,
the legal aspects of the industry will be explored through a comparative analysis of China and
overseas models, specifically in the United Kingdom (UK) and the United States (US). While
CreditEase’s risk management mechanisms are performing well, we would encourage more
involvement in industry associations and closer co-operation with the government to formulate
industry-wide mechanisms as well as other important P2PL regulations.
Our aim is to keep CreditEase and EasyLoan at the forefront of the P2PL industry, whether in
terms of brand name, market share or regulatory compliance.
1 Mr. Yang Chen, EasyLoan, Interview on 14 November 2014
2
I. MARKETING AND ADVERTISING
A. The Problem
A successful P2PL company usually has little trouble attracting lenders; those with discretionary
income are sold on the good return rates and on the effective risk management strategy in a
diversified wealth management portfolio. Moreover, lenders are more likely to stay on as
customers, especially when their investments make money. In contrast, borrowers are slightly
harder to influence, particularly as they are less concerned with return rates and, typically, one
hopes not to be in debt again, thus being a “return” borrower is not on most people’s agenda.
As part of the largest independent financial service provider in China,2 EasyLoan faces the
universal challenge of balancing the lender to borrower ratio. Most of EasyLoan’s marketing and
advertising targets borrowers not lenders.3 This is the proper focus, however, the use of these
resources must become more dynamic in order to have a more profound effect on brand
awareness, and to entice borrowers to utilize EasyLoan’s services.
B. Causes
In addition to the above mentioned hurdles, our team has identified three other reasons borrowers
may be reluctant to use internet financing, particularly P2PL.
Firstly, the concept of P2PL is fairly new in China, it debuted in 2006, but did not experience
significant growth until 2010.4 As the founder of CreditEase, Tang Ning, pointed out: “[H]ere,
when you ask Chinese people if they trust the credit system, 10 out of 10 say no. That is a huge
difference [from the US], representing a huge opportunity or – if not done well – representing a
huge challenge.”5
2 Jason Jones, “The Most Important Chinese P2P Lending Companies” Lend Academy. May 4, 2014.
<http://www.lendacademy.com/the-most-important-chinese-p2p-lending-companies/> 3 Id. 4 Nomura Research Institute, “Point of View/Takeshi Jingu: Risks, opportunities in China’s P2P Lending Market”
The Asahi Shimbun. <http://ajw.asahi.com/article/views/opinion/AJ201409140026> 5 Simon Rabinovitch, “CreditEase shines in China peer-lending market” Financial Times. Feb. 7 2012.
<http://www.ft.com/cms/s/0/ec6d28ee-472d-11e1-b847-00144feabdc0.html#axzz3J1iDBXfc>
3
Figure 3
According the data in Figure 1,
the majority of our sample
either have not heard of the top
five online P2PL companies
(less than 50% each) or only
vaguely heard of them - very
few have actually used the
services themselves or even
considered using them. 71% of
those surveyed had not heard of
EasyLoan or had only vaguely
heard of it.
Of those surveyed, 83% had never used
internet borrowing and nearly 40% of those
foreign to internet borrowing said they
would never consider using such services.
(Fig. 2)
Connected to such a fear of the unknown is
the added concern one may have with regard
to providing personal details such as bank
statements, Taobao transaction records and
utility bills. In order to crease the number of
borrowers, these fears must be dispelled.
Fig 3. 97.6% of our sample expressed
concern at providing such information to
internet companies, although over 50% were
content to do so if there were guarantees of
security.
不 认
识
好像听说
过
朋友和家人
用过或介绍
过
很收悉 考虑用
过
自己用
过
信而富 42% 26% 19% 13% 4% 3%
宜信 30% 26% 23% 17% 8% 3%
点融网 34% 25% 21% 15% 7% 3%
陆金所 23% 26% 23% 20% 11% 6%
人人贷 15% 29% 21% 25% 13% 6%
拍拍网 12% 26% 22% 26% 14% 9%
受 访 人
数
500
Figure 1. Q6 你认识以下的哪一些公司
Figure 2
4
Finally, traditional Chinese culture presents a fundamental issue. The family unit is the backbone
of Chinese society; as such, when one is in need of money, relatives and close friends are likely
to be the first port of call. This trend is reflected in the survey conducted by our team:
It is clear from these figures that
the majority of our sample
audience preferred to first
borrow from friends and family
and from traditional banks
second, and the third preference
was a close tie between internet
banking and “rather not borrow
at all.” Other methods suggested
by those surveyed included
borrowing from work units,
employers, mortgages and credit
cards.
C. Solutions
Tsinghua Global’s market research
revealed that 56% of our sample size had
either “never heard of” or “vaguely
knew” of CreditEase (See Figure 5). This
fact represents probably the largest threat
to CreditEase. However, because of the
lack of recognition, CreditEase can
introduce itself to consumers with
dynamic tactics designed to build
familiarity, brand recognition, and
consumer loyalty. These plans are:
(1)_wide-scale mobile e-Commerce,
(2)_celebrity endorsements, and (3)
establishing relationships with traditional
financial institutions.
第 1 位 第 2 位 第 3 位 第 4 位 第 5 位 平均排名
朋 友 或
家人
58% 26% 9% 5% 2% 1.666
银行 27% 49% 17% 6% 1% 2.028
网 络 借
款
8% 12% 38% 23% 19% 3.334
宁 愿 不
借
7% 11% 27% 39% 16% 3.478
其他 0% 1% 9% 27% 62% 4.494
受 访 人
数
500
Figure 4. Q10 如果你需要借钱你会先去哪里?
Figure 5
5
1) EasyPay
In 2014, there were 700 million smartphone users in China;6 these 700 million users represented
nearly two trillion dollars in transaction value. In light of these facts, the mobile transaction
market represents a huge opportunity for CreditEase. CreditEase must be more aggressive in
order to capture a greater market share, and ultimately increase its brand awareness. One way to
achieve this objective is to look to the Smartphone-Transaction culture already popular among
smartphone users world-wide.
In China, e-commerce, online marketing and data collection information are valuable business
tools to give CreditEase a competitive advantage in the P2PL industry. To maximize this aspect
of CreditEase’s EasyLoan portfolio we believe that CreditEase should create an “easy electric
wallet program” (eWallet) named EasyPay.
EasyPay would utilize a mobile application and online platform
similar to AliPay, but instead of exclusively focusing on online
payments, EasyPay would aim to be utilized for purchases at
brick and mortar retailers. These retailers would be provided with
specialized tools to allow consumers to pay for goods and
services with their phones.
This tactic was used to great success by companies like Starbucks, and most recently Apple. In
many parts of the world, Starbucks consumers purchase coffee with an application on their
phone instead of paying with cash or using their credit cards. In Apple’s example, after just re-
releasing their own version of an eWallet, they gained 1% of market share in a single week.
There is no reason this same success couldn’t be experienced and built upon in China.7
Customers would open the app, which has a stored value on it, and hold up their phone to the
register system and pay for their purchase. This feature provides value to Starbucks, because it
circumvents the standard 3% fee on transactions assessed by credit card companies. Through
this tool, Starbucks has a direct marketing channel to its consumers, and can offer them loyalty
programs. According to the Bain study, Chinese consumers are prepared, and could easily adapt
to this advertising incentive.
6 Serge Hoffmann and Bruno Lannes, “China’s e-commerce prize” (Bain & Company, 2013) 7 Mike Isaac and Brian X. Chen. Apple Pay Gives Glimpse of Mainstream Appeal for Mobile Payments. Nov. 14,
2014 <http://www.nytimes.com/2014/11/15/technology/apple-pay-gives-glimpse-of-mainstream-appeal-for-mobile-
payments.html?_r=0>
6
Tsinghua Global suggests that CreditEase partner with Tsinghua University’s X-Lab and create
this application and point-of-sale tool. Tsinghua University has the best young and talented
software engineers China has to offer, and the resources to create this tool. After the tool is
developed CreditEase should give the tool to retailers in specific sections of Beijing free of
charge. Free distribution of this new service allows both the retailer and CreditEase to increase
their profit margin. A free mechanism to increase profitability will be attractive to many retailers
and many will likely sample the service at least on a trial basis. The value for retailers is it
increases their profit margin by circumventing credit card transaction fees. More importantly
CreditEase will increase its client base by allowing people to use the tool and become more
familiar with CreditEase. Once customers start using EasyPay, CreditEase can collect data on
the consumer’s consumption
habits and market its loans and
services to them. CreditEase could
even connect with retailer’s loyalty
programs to maximize the benefit
of the tool for the consumer.
Our proposal, EasyPay, is optimal
for combining the marketing of the
EasyLoan’s mobile app and
consolidating of CreditEase’s
foothold in the e-commerce market
and is anchored in a strategy that
has already been successful in a
market that is not as
technologically savvy as China.8
2) EasyPay Credit Line
The innovation of EasyPay does not halt at merely existing as a marketing initiative. EasyLoan
can access a new revenue stream through its EasyPay eWallet. The EasyPay eWallet will have a
line of credit account in addition to the debit account. Similar to how EasyLoan replaced bank’s
consumer loans, EasyLoan can replace bank’s credit cards. The EasyPay eWallet will have both
a debit and credit account. The EasyPay Credit Line (CL) will become another investment
vehicle for lenders to indirectly give a line of credit to qualified borrowers. EasyPay CL users
will have instant access to lines of credit for everyday purchases. The credit line structure will
resemble the traditional credit card structures, with overdraft functions, zero interest for thirty
8 Amy Dunn Moscoso, “Best Mobile Credit Card Processing: Square vs. Paypal & Others” (FitSmallBusiness.com,
23 April 2014), <http://fitsmallbusiness.com/best-mobile-credit-card-processing/>
Figure 6
7
days, etc.9 Using EasyLoan’s existing P2PL credit rating system we can calculate the borrower’s
risk to identify the most qualified borrowers and advertise this exclusive credit line to them
directly.
The EasyPay CL addresses the demand for more investment opportunities. To enter this asset
category, EasyLoan lenders will invest into the EasyLoan wealth management tool (WMT). The
WMT will dispense lenders’ money through EasyPay CL to qualified borrowers who are seeking
credit for everyday expenses. Thus creating a revolving door for borrowers to access credit.
The WMT will use economies of scale and law of averages, just like credit card companies, to
earn net profits overall. Even though some borrowers will pay back before thirty days, others
will prefer to pay back in monthly installments, thus generating interest fees that will be
dispersed to the lenders proportionately to the amount they have invested.10 Also, EasyLoan can
charge service fees.
The government has regulated the P2PL industry using a free-market laisse-faire approach. The
government allows companies to develop innovative and beneficial financial products, within the
boundaries of consumer protection. Therefore, without direct regulation illegalizing private
financial companies from offering lines of credit, we advise EasyLoan to pursue this new
revenue stream. Furthermore, EasyLoan will not incur significant costs to develop this financial
product. EasyLoan CL is within the existing P2PL boundaries, uses EasyLoan’s current lenders
and borrowers, and EasyLoan’s technical expertise and software.
In the future, P2P credit lines might be contested. However currently, no regulation specifically
eliminates non-bank entities from developing credit lines.11 Just like P2PL in its early stages
operated in the gray market without legislation, EasyPay Credit Line system will be allowed to
flourish. EasyLoan will adopt the practices of credit card companies to ensure utmost consumer
protection while developing an innovative revenue stream so far non-existent in the Chinese
P2PL industry.
9 Measures for the Supervision and Administration of Credit Card Business of Commercial Banks, China Banking
Regulatory Commission, Order No.2. Jan. 13, 2011. 10 A simple example with only 3 investors: Investor #1 puts in $100, #2 puts $50, and #3 puts $50. WMT loans out
$200 to borrowers and earns $40 interest. WMT will give investor #1 $20, #2 $10, #3 $10. This example doesn’t
include EasyLoan service fees. 11 Measures for the Supervision and Administration of Credit Card Business of Commercial Banks, China Banking
Regulatory Commission, Order No.2. Jan. 13, 2011. (This legislation does not exclude non-banks from operating
credit card businesses).
8
3) Celebrity Endorsements
Generally speaking, people trust who they know. The Chinese people are no different, in fact,
Chinese people are particularly receptive to media personalities.12 CreditEase should capitalize
on this preference by enlisting the help of Chinese celebrities to endorse and vouch for their
product. More important still is the fact that celebrities already have an established image and
relationship with people. CreditEase may utilize this trust to not only increase the use of
CreditEase, but also to increase its brand awareness. In effect, the goal of this campaign would
be to make CreditEase synonymous with the chosen celebrity, so that when they see the
celebrity, they will associate him or her with CreditEase.
Whomever this celebrity is, he/she must maintain at least two qualities: (1) they must possess
high business acumen, and (2) be trustworthy, and (3) they must be involved with CreditEase as
a lender. These requirements have a compound effect. People are more likely to trust a celebrity
who has a proven record of objective business success. Further, people will more likely trust the
endorsement if it comes from someone who actually uses CreditEases’ services themselves.
4) Strategic Partnerships with Banks
When asked “if you were to borrow money, where would you go first,” 27% of respondents to
our survey said they would go to traditional financial institutions (banks). This category was
second only to “family and friends,” in terms of who survey takers would feel comfortable going
to. This once again represents another strategic opportunity for CreditEase.
Banks are not capable of meeting every consumer’s needs. They are forced to make difficult
decisions in determining who will receive their desired loan, and who will not, with the latter
often not having a definite direction or strategy for acquiring said funds. With the ability to refer
customers to a source where a rejected customer could obtain his funds, the bank is able to “save
face,” while rejecting the customer, and the rejected party is likely to still obtain their loan
through CreditEase. CreditEase does not compete with these institutions, as it only provides a
platform for obtaining small personal loans, and the banks would be incentivized to make
referrals to CreditEase as long as CreditEase is a legitimate alternative. There are regulations
regarding this topic that will be discussed in-depth later in this report.
12 Strategy Briefing, “Celebrity Power and Its Influence on Global Consumer Behavior” (Euromonitor International,
17 March 2014)
9
Working with these banks adds more
credibility to CreditEases’ brand as
well. Among our survey respondents,
61% “did not trust” online banking.
That said, the Bain study points out that
unlike consumers in other markets like
the US, Chinese consumers are more
likely to utilize mobile banking. Thus,
if CreditEase were endorsed by
traditional financial institutions it would
help change that negative perception of
P2PL. Establishing these relationships
is a matter of opening up the channels
of communications to the banks, and illustrating to them the mutual benefits of such a
partnership. Even if there is further costs associated with garnering endorsements, it is
outweighed by the long-term relationship with banks.
D. Additional Marketing Concepts
Using our research on consumer preferences, our team has also developed three other marketing
ideas that will help attract more customers and grow EasyLoan’s market share.
Firstly, to tackle the unfamiliarity and discomfort that new customers may feel in using an online
P2PL website or mobile application, we propose using a remote access tool to guide customers
through the entire process.
While most of our sample would prefer to have face-to-face contact with an agent before using
an online lending platform (see Figure 7), to provide such a service would require a great deal of
expense in terms of investment and time. A more efficient alternative would be to provide an
option on the website for customers to speak to an advisor via an online chat platform and an
additional option for the customer to allow remote access to his computer so the agent could
personally help him through the process. This would increase consumer confidence and render
the whole experience more enjoyable for customers.
Secondly, as our data reflects, most people would prefer to borrow money from friends and
family.13 EasyLoan could make use of this centuries-old culture by providing a platform for
lending and borrowing between family and friends. This model is used by Virgin Money USA
(formerly known as Circle Lending) and National Family Mortgage. 14 Such a method of
13 See Figure 4. 14 See National Family Mortgage Website, <https://www.nationalfamilymortgage.com/about-us/>
Figure 7
10
managing private loans could be marketed on the basis of providing a legal structure through
which money can be passed through relatives and close friends, as well as helping to keep the
financial relationships structured but still personal.
Finally, every sturdy home is built upon a solid foundation; likewise, CreditEase must strengthen
its base by engagement with potential clients on a personal level. China is a country of
relationships, and CreditEase must endeavor to create lasting relationships with its target
consumers. Therefore we would propose hosting Personal Wealth Management Seminars, and
Personalized Meetings to better engage with the masses.
E. Conclusion
To increase EasyLoan’s market share and increase consumer confidence, the brand image of the
product and of CreditEase must become more prominent. With this in mind, we proposed a three
pronged approach to increase the amount of borrowers. This approach encompasses creating a
new mobile app (EasyPay) to increase CreditEase’s visibility, utilizing celebrity endorsements to
endow the product with more familiarity and credibility, and partnering with financial
institutions to increase P2PL market share.
II. COMPARATIVE ANALYSIS
Currently China has over 1280 P2PL companies, while the US is limited less than five due to the
high barriers to entry. The competitive analysis provided shows that P2PL companies in China
are focusing their efforts on the financial sector, as does CreditEase. CreditEase does have a
successful wealth management platform, but as we will show it still needs to create an innovative
tool to distinguish it from the competitors.15
15 Jason Jones, The Most Important Chinese P2P Lending Companies, Lend Academy. May 2, 2014.
<http://www.lendacademy.com/the-most-important-chinese-p2p-lending-companies/>
11
CreditEase RenRenDai PPDAI ChinaRapid Lufax
Key
factors:
Wealth
management
and P2P loans
One of largest
and fastest
growing
First online
P2P platform
P2P began
2013
Third largest in
China and fastest
growing
Niche
markets:
Loan
platforms for
all types of
borrowers.
(business,
student,
personal
agriculture)
Focus
Personal and
Small
Business
Focus is Small
Businesses/D
ata Collection
Determines
Creditability of
Borrowers
Main Focus
Underwriting
Credit cards
Guarantees loans
with financial
products, and
sells loans in
secondary market
to provide
liquidity
Loan
max:
Maximum
loan
500,000RMB
Borrowers can
take up to
50,000RMB
Up to
500,000RMB
Average loan
$6,000USD
300,000 RMB
cap for
uncollateralized
loans
Loan
revenue:
30 billion RMB
a month in
2013
157 Billion
RMB 2013
Was expected
to generate 26
billion in Sales
2013
1.5 billion RMB
2013
3.3 billion RMB
2013
Important
factors:
Wealth
management
department
that promotes
financial
products
Received $130
million in
series A
funding in
2014
Rumored to
have been
given $105
million of
series A & B
funding
Would like to
apply for US
IPO
Provides fully
insured
Investments
through Ping An
Brand
III. DATA-SHARING
A. Introduction
The rise of P2PL in China is dissimilar to any other country in the world. Mobile technology
and data collection are powerful tools in the Chinese market. A lending institution such as
CreditEase only benefits from increasing the mobile financial market in China. According to our
interview with Guo Shan Shan, a CreditEase employee, only 30% of borrowers have utilized the
12
mobile application to obtain a loan. Our report focuses on the value of data collection, and also
recognize issues around the world and what CreditEase can do to limit its exposure.
B. Opportunities
The evolution of China’s internet and smartphone usage is a dynamic opportunity for CreditEase,
because the internet data that is collected from these mediums provide useful information on
consumers’ creditworthiness. According to a study by Bain & Company, Chinese shoppers are
more willing than shoppers in other countries to use their smart phones to make purchases, and
are also comfortable with third-party payments and online banking.
More importantly, the study also showed that digital retailing is a major influence on Chinese
consumers’ actual purchasing decisions. Thus, the primary focus for CreditEase should be "to
shift away from the personal computers and focus heavily on the mobile application market."
The study stressed that smartphone usage is higher in China than in the US. Namely, in China
the more affluent the person the more likely the smartphone is the primary mode of monetary
purchases and exchanges. The focal user for the EasyLoan platform are affluent consumers in
urban areas, which means that the study’s information regarding smartphone usage is applicable
to these users.16
C. Challenges
One of the biggest challenges facing CreditEase is the lack of a standardized credit monitoring
system that can be utilized by P2PL companies.17 CreditEase utilizes data collection as a factor
in examining the creditworthiness of a borrower. This data collection is also a common metric in
the US. The key difference between the US system and China’s, is that lenders in US are able to
mitigate the risk of bad data with the use of a standardized credit system. The Chinese
government has requested that a central data base be created by 2018,18 but exactly how that will
come to fruition remains to be seen.
Furthermore, it is equally undetermined if companies will trust the Chinese government’s credit
evaluation methods. One concern that may arise with this establishment is that the credit system
is that it may open banks up into the loan market that they are currently neglecting, and if
CreditEase does not establish itself as a trustworthy, well-known lending platform it could easily
begin to lose business to traditional banks. Currently, CreditEase has developed its own tools to
monitor the borrower’s creditworthiness, and along with those tools they have adapted
algorithms to utilize data collection. These filters have provided CreditEase with the assurance
that qualified borrowers will be able to pay back their loans. This assurance provides comfort,
16 Serge Hoffman and Bruno Lannes, China’s E-Commerce Prize, Bain & Company, 2013. 17 It should be noted that the PRC is currently in the midst of developing such a system. 18 Lending Academy, Lend it Conference <http://www.lendacademy.com/p2p-lending-lendit-shanghai>
13
that the data collection usage has been used in an accurate and effective manner to decrease
default rates.
The sheer volume of data transmitted in China presents its own problem. Particularly, using the
gathered data as a factor in determining credit worthiness without the assistance of a credit
system, can be problematic. An analogy that was discussed in a study titled Data Mining with
Big Data, was that in a naive sense, we can imagine that a number of blind men are trying to size
up a giant elephant, which will be Big Data in this metaphor. The goal of each blind man is to
draw a picture (or conclusion) of the elephant according to the part of information he collects
during the process. Because each man’s view is limited to his local region, it is not surprising
that the blind men will each conclude independently that the elephant “feels” like a rope, a hose,
or a wall, depending on the region each of them is limited to. To Further complicate the
hypothetical, let us assume that 1) the elephant is growing rapidly and its pose changes
constantly, and 2) each blind man may have his own possibly unreliable and inaccurate, sources
of information that bias his judgment about the elephant’s true shape (e.g., one blind man may
exchange his feeling about the elephant with another blind man, where the exchanged
information is inherently bias). Exploring Big Data in this scenario is the equivalent to
aggregating heterogeneous information from different sources (blind men) to help draw a best
possible picture to reveal the genuine gesture of the elephant in a real-time fashion.19
Another challenge for CreditEase is that in the rest of the world data collection and data sharing
is controversial. Our market research revealed that 60% of Chinese consumers were definitely
aware of what data collection was.20 Additionally, as shown in Figure 9, over 60% of consumers
were either hesitant about using a company or would not use a company at all if that company
collected or shared the consumers information with a third party. These statistics are significant
for CreditEase because data collection is one of the factors in its credit application. In the US
there is a movement against data collection and it is gaining momentum as more and more
company’s methods are being exposed. On almost a daily basis there are stories on which
companies are collecting data and using it. This is seen as a negative aspect, and can affect the
company’s bottom line if the consumers decide to no longer use the company.
19Xindong Wu, Xingquan Zhu, Gong-Qing Wu, Wei Ding, “Data Mining with Bog Data (IEEE Transactions on
Knowledge and Data Engineering, Vol. 26, No. 1 January 2014) 20 See Figure 8.
Figure 8
答案选项 回复情况
是 301
否 199
受访人数:500
Figure 7 &
14
D. Solutions
In order to mitigate its risk, CreditEase must focus on its transparency. According to the New
York Times one data collection company allows consumers to review the data collected.
Consumers input their indicative data and review what was collected, however they are not
allowed to change any of the information. If they want to discourage the company from using or
selling the information they can do so by filling out a long and detailed form. Many people do
not choose this option, because it is too complex. However, when people review the information
they begin to understand that the information is not invasive. The information is not always
accurate, and it is also not information that will hurt the consumer. 21 If CreditEase were
transparent about the credit assessment process, and provided a tool that allows a person to
review the data collected it will prevent CreditEase from being viewed as malicious or secretive.
As seen in Figure 9 and 10, people in China have a problem with companies selling or sharing
their information with third parties.
One valuable service that CreditEase can offer, is an “opt out clause” for data sharing after the
loan is borrowed. The consumer will have to pay an additional fee for this, but if they are
concerned about it they will likely not object to the fee. This will mitigate the loss of revenue
from the sale of the information.
21 See Natsha Singer, Acxiom Lets Consumer See Data Collects, New York Times. Sept. 4, 2013.
答案选项
回 复
情况
一定不会用 121
如果有保障可以考虑用 236
如果可以选择不分享自己的
信息，可以考虑用 121
如果有需要就会用 22
受访人数:500
Figure 10
Figure 9
15
IV. REGULATIONS
A. Introduction
The P2PL industry is prospering but still in regulatory disorder. The Central Bank and other
banking regulators are inexperienced with this new market and relatively reactive given the rapid
flux in China’s financial and monetary system.22
Without proper legislation the industry can face serious disasters. Such negative effects of non-
regulation include: jeopardized recovery of lending capital, contract fraud, financial fraud,
money laundering, improper use of credit, disclosure of users’ confidential information, abuse of
non-regulation, borrower’s credit risk, high default rates from low-income borrowers, and bad
faith exits.
1) Current Legislation
P2PL financial regulators are predominately the PBOC and CBRC. The P2PL industry is directly
and indirectly subject to several regulations, specifically the PBOC Law, Banking Supervision
Law, Commercial Bank Law, Securities Law,23 CBRC official documents and, most recently, the
CBRC’s negative list. The Supreme People’s Court has also placed a binding restriction on P2PL
companies, preventing lenders from charging more than four times the bank lending rate.24 This
restriction, while well founded, does not honor the intention of the Supreme People’s Court.
In the past several years, the CRBC has issued substantial regulation. Notably in 2011, the
CRBC released an official document on P2P network lending risk, but this did not fully cover
P2P lending risks as well as lending rules and norms.25
On November 12, 2014, the CBRC laid out seven principles for the P2PL industry.26 This is the
first clear and substantial government regulation that creates restrictions on the industry. A major
22 See generally China, D&B Country Insight, page 14. Feb. 2014. 23 E.g. Under Chinese Securities Law, institutional investors cannot lend to individual borrowers.
24 See 最高人民法院印发《关于人民法院审理借贷案件的若干意见》的通知（1991年 8月 13日法（民）＜
1991＞21号）<http://www.chinacourt.org/law/detail/1991/08/id/13302.shtml> (However, this lender restriction
does not limit P2PL platforms, like EasyLoan from charging their own fees). 25 See Yin Jian Ban Fa, "On All Loans Have Off Risk Warning Notice." No. 254. Aug. 21, 2011
16
concession was the CBRC acknowledging that P2P companies function across multiple
regulatory authorities’ jurisdictions as well as local business sectors. This would suggest that the
Finance Office and various other agencies are required to jointly assume regulatory
responsibility.
The CBRC’s failure to clearly define the responsibilities of the state’s regulatory organs has
created an apathetic regulatory culture in some localities while invigorating other localities to be
more proactive with regards to P2PL regulations.27
2) Preparing for Change
Although government regulation has not been particularly forthcoming, our team believes that
reform of the P2PL industry is inevitable. Two main reasons are the ever-evolving nature of the
P2PL industry and the Chinese government’s consistent policy of financial repression. If a
serious incident were to occur, as they recently have, the government is likely to intervene and
create market restrictions.28
This reactionary approach is reflected in the recently announced principles mentioned above,
where the government addressed serious issues of consumer protection by restricting unlicensed
spin outs of P2PL, eliminating shadow banking, promoting platform security, creating capital
requirements, strengthening information disclosure, requiring educated and experienced P2PL
companies personnel, and emphasizing self-regulation.
Dealing with the current jungle of legislation is a challenge for any company and a wholesale re-
organization of the law could be a huge hurdle. However, the current uncertainty could be turned
to the advantage of CreditEase. By placing itself at the forefront of potential reform, the
company could direct any forthcoming regulations in a way that would be more favorable and
require less re-structuring and compliance costs. It would also simultaneously lend CreditEase
increased credibility as a major player in the industry.
B. Comparative Analysis
In order to face the looming regulatory challenges ahead, it would be useful to reflect upon the
experience in older P2P markets. With that in mind, we have outlined the two distinctive
regulatory paths in the UK and the US.
26 P2P 监管风向初定：银监会七大原则全维度规范 2014-11-12 15:57:04 来源: 新华网
<http://money.163.com/14/1112/16/AAS5BIPA00253B0H.html> 27 See e.g. Shenzhen’s apathetic and shifting approach as compared to Ordos City’s proactive approach. The latter
recently announced “Interim Measures regulating private lending in Ordos City.” 28 See Naiwen Zhang & Yangjie She, The Evolution of Peer to Peer Lending in China. Sept. 12, 2014. “From
October to the end of 2013, 74 platforms went bankrupt with owners absconding or restricting investors from
withdrawing funds. $300 million was involved, which was three times higher than the total volume of previous
defaults.” <http://www.crowdfundinsider.com/2014/09/48954-evolution-p2p-lending-china/>
17
1) The US
The US implemented a relatively strict regulatory system that severely restricted the P2PL
industry. The US is now transitioning to a more tailored approach to P2PL regulation after
realizing its securities law has put an overtly heavy burden on the market.
In the past, there were over 10 different major bodies that directly and indirectly regulated the
P2PL industry.29 The 2008 financial crisis coupled with high P2PL default rates led to the SEC’s
regulating crusade against the P2PL industry.30 Institutions were required to gain SEC approval
in order to offer investor notes backed by payments received on the loans, thus addressing the
liquidity and transparency problems as well as offering more transparency.
The SEC intervention reduced default rates, but increased operating costs, time costs, and created
regulatory hurdles that have caused significant barriers to entry.
In July 2010, the US enacted the Dodd-Frank Wall Street Reform and Consumer protection Act
(Dodd-Frank Act), which addressed consumer protection concerns while recognizing the
expensive barriers to entry, anti-competitiveness, and the inability of SEC regulators to address
the ever evolving P2PL industry.
The following comparison of two US P2P companies, Prosper and SEC, shows the importance of
working with the government when the latter is formulating regulations.
Prosper waited till SEC came knocking on their door with a cease and desist order that shut them
down for months, created negative PR and damaged the brand, invoked class action lawsuits,31
and created huge regulatory compliance costs. Prosper spent $5 million to complete the
registration process and another $1 million to implement the SEC’s regulatory requirements.32 .
The SEC’s approach to regulatory compliance was disadvantageous to Prosper and harmed the
company’s market share.
On the other hand, Lending Club benefited from cooperating with the SEC from the onset of
impeding crackdowns by voluntarily registering their notes. It became the market leader in 2008
as a result of the cooperation and filing a registration statement with SEC earlier than Prosper.
Lending Club gained the a majority of the market, became a publicly traded company, and now
29 See Eric C. Chaffee & Geoffrey C. Rapp, Regulating Online Peer-to-Peer Lending in the Aftermath of Dodd-
Frank: In Search of an Evolving Regulatory Regime for an Evolving Industry, 69 WASH. & LEE L.REV.485
(2012), P508-509. 30 Alex Lee, Peer to Peer Lending: The Murky Future with America’s New Consumer Protector Thomson Reuters’
Business Law Currents. Jan. 25, 2012. <http://Currents.westlawbusiness.com> 31 See Hellum v. Prosper Marketplace, Inc. Superior Court of California (lawsuit on behalf of investors claiming the
Prosper offered and sold unqualified and unregistered securities, Prosper settled for USD$10 million) 32 See Prosper Marketplace, Inc., Quarterly Report (From 10-Q), at 2 (June 30, 2010); Lending Club Corp.,
Quarterly Report (Form 10-Q), at 3 (June 30, 2010).
18
major institutional investors are investing hundreds of millions into Lending Club to diversify
their portfolio with the attractive 10% return rate.
The juxtaposition of these two companies’ experiences is an important lesson in the need to react
quickly to regulatory changes, and we would even suggest going a step further by leading such
changes. This is particularly important in China where government support is paramount and
regulatory changes occur incredibly quickly.
2) The UK
In contrast to the US, the UK has taken a laisse-faire regulatory approach by permitting the
industry to self-regulate. The government used the experience distilled from these self-regulatory
rules to introduce a specialized legal system and government regulatory programs which made it
easy for industry compliance and growth.33
UK P2PL companies thus developed an industry-wide association to gain public trust and
maintain order. Zopa, together with RateSetter, Funding Circle, and other major P2PL companies
formed the Peer-to-peer Finance Association. This association developed many critical self-
regulating measures that became basic principles laid out in their Code of Business Conduct.
The most significant advantage to developing a self-regulating association was that it gave the
government a helping hand in creating sustainable and fair regulation that supports the healthy
growth of the industry.
CreditEase could follow simulate this approach by leading discussions on a self-regulatory
regime.
C. Proposals
Under the seventh principle, self-governing is now approved. CreditEase could thus continue
hosting conferences and furthering industry association meetings with the ultimate goal of
developing guidance that the government could use to develop future regulation.34 For example,
government officials attended the most recent LendIt summit in Shanghai hosted by CreditEase,
which presented a great opportunity for the industry to connect with government officials and
share with them the important regulatory concerns and opportunities.35
33 See Eric C. Chaffee & Geoffrey C. Rapp, Regulating Online Peer-to-Peer Lending in the Aftermath of Dodd-
Frank: In Search of an Evolving Regulatory Regime for an Evolving Industry, 69 WASH. & LEE L.REV.485
(2012). 34 See CreditEase Brocure, p. 27 CreditEase has many strategy partners, university partners, and cooperation
partners. 35 Jason Jones, Co-Founder of LendIt, 中国互联网金融空间的美好前景：举办 P2P 行业上海 LendIt 峰会后的收
获. Aug. 1, 2014.
19
The conferences and association meetings should help guide, support and stimulate growth of the
P2PL industry to the extent the government approves. Establishing industry wide risk control
mechanisms will reduce government interference. Some areas yet unexplored by the government
include the scope of business, operational requirements, risk control, access and exit
mechanisms, terms of registered capital, personnel qualifications, 36 technical security measures,
37 and customer protection.
As the industry grows and self-regulation becomes more prevalent, the over 1,280 P2PL
platforms will need to be subcategorized into different regulatory schemes. A classification
permit system differentiates between the diverse lending models in P2PL industry. P2PL
companies attract the whole spectrum of borrowers from lower class to white collar workers and
P2PL niche markets are also very diverse. Therefore, a one-size-fits-all approach to regulation is
not realistic.
The following are some additional suggestions to be explored:
CreditEase should work with the government to life these restrictions: restriction on
institutional investors, restrictions on individuals lending to SMEs,38 restriction on access to
bank credit rating systems, and restriction on money pools.
Conduct public service announcements addressing risks to lenders in the P2PL industry. For
example, educated lenders to be cautious of P2PL companies guaranteeing outlandish returns
and the prevalence of misrepresentation of high yielding interest rates.39 This will be a form
of material marketing and help the government protect consumers.
By leading the discussion on the legal aspects of the industry, CreditEase would be able to gear
the regulatory changes such that it is more favorable to the company. It would also lend more
credibility to the brand name and increase CreditEase’s market share.
36 P2P 监管风向初定：银监会七大原则全维度规范 2014-11-12 15:57:04 来源: 新华网. (最后一点，整个行业
要实行"黑名单制"，加强行业自律，发挥行业协会的协调监管作用，着重加强协会在行业内部的约束力、
公信力。) <http://money.163.com/14/1112/16/AAS5BIPA00253B0H.html>
37 Id. (第三，必须具备一定的技术能力，包括互联网网关技术，以及防黑客、防盗用、防诈骗等基本技术门
槛，尤其是防止黑客行为对借贷双方造成损失。) 38 Not only does this increase the pool of borrowers, but also allows SME’s access to EasyPay Credit Lines for
travel expenses and business procurement. 39 http://www.crowdfundinsider.com/2014/04/35356-p2p-questions-china-indicate-need-regulation/
20
V. CONCLUSION
“It's not the strongest of the species that survives, nor the most intelligent, it is the one that is
most adaptable to change” (Charles Darwin) CreditEase is the strongest of the independent
financial service “species.” To maintain this title, CreditEase through EasyLoan must continue
to adapt and grow along with the source of its power, its’ borrowers.
Tsinghua Global has identified the lack of these borrowers as the greatest threat currently facing
CreditEase. Therefore a significant portion of this report has focused on addressing this
weakness. Tsinghua’s Global solutions is a targeted marketing campaign anchored by: (1) A
dynamic new initiative called EasyPay which is an eWallet designed to attract new customers
and create greater brand recognition, (2) Garner Celebrity-Endorsements to foster trust in the
CreaditEase name, (3) Strategic partnerships with traditional financial institutions to continue
building brand recognition and further entrench public trust, and finally (4) Alternative
advertising ideas that could be of used in the future.
“Technology has added wings to the finance sector. It has made the impossible become possible.
Big data can now be used to check the authenticity of the documentations to solve fraud issues
that were hard for us to solve before.” This quote from CreditEase founder Tang Ning
underscores the message of our Data Sharing Section. Namely, that data security, and the use of
data is essential for CreditEase going into the future.
Legal compliance and awareness is of paramount importance to avoiding conflict with the PRC.
In our Regulations section, Tsinghua Global has outlined the current legislation in light of the
imminent oversight regulation being introduced from the PRC. The Comparative Analysis
highlights the strengths and weaknesses of CreditEases’ competition before we propose a course
of action for addressing said competition.
With all of the foregoing in mind, if CreditEase follows the course of action outlined above,
Tsinghua Global believes that CreditEase is primed for success and ready to move into its most
profitable era yet.
Tsinghua Global Team
Nov. 18, 2014
