My first trip to China was back in 2014 when I was invited to speak at a closed door meeting with Chinese regulators and leading P2P lending platforms. They wanted to learn about the US market and trends I was seeing here at the time.
Back then new platforms were launching pretty much every day as p2p lending became the hot new investment. The number of platforms grew to well over 3,000, a number that everyone agreed was not sustainable. But new platforms kept on launching, attracting both investors and borrowers with relative ease.
Five Platforms a Day Are Failing Right Now
We all knew the party was going to end at some point and it looks like 2018 will be the year of reckoning. According to industry data provider, Wangdaizhijia (loosely translated as Online Lending House), platforms are failing at a rate of around five a day with 114 platforms shutting down between July 1 and July 24.
Many investors are losing their money as platforms either shut down completely or suspend withdrawals. While some platform failures have been due to outright fraud it seems that most have been hit with much higher default rates than expected. As we have learned in this country in recent years underwriting unsecured consumer loans is hard. It requires deep knowledge of consumer credit and even then positive investor returns are not guaranteed.
In a recent article in the South China Morning Post (SCMP) , the head of the Beijing Internet Finance Association, Ning Tang, who is also the founder of CreditEase, was interviewed and they had this to say about him: [Read more…]