Jiangnan Fenqing, a famous internet commentator and prolific investor, made a speech about the future of P2P in China last year. With the government crack down on the sector ramping up, many are reposting the speech.

Let’s just review the gist of the speech:

  1. The term “P2P” is largely used to refer to online cash loan – this is different from payday loan in the West in many aspects, including regulations, scope & coverage, and disbursement/repayment methods;
  2. It went viral in China because customer acquisition online is common, payment is extremely smooth, and data privacy protection is weak;
  3. There are NOT that many borrowers – otherwise there would not be so many online traffic platforms selling borrower leads to P2P lenders;
  4.  Better risk control/credit scoring does not make sense, because most borrowers are borrowing from multiple platforms – it makes more sense to just raise the interest rate, then focusing on credit control;
  5. There are so many unlicensed/illegal cash loan platforms, which makes it difficult for licensed ones to compete – illegal ones carry much higher interest and are likely to have recovered their principal long time ago;
  6. Bad people will simply not pay back to illegal platforms, because there is no way illegal platforms can collect legally; only honest people pay back, and often using money borrowed from other platforms, in a vicious cycle until they can no longer pay anything;
  7. The government will eventually crack down on all illegal platforms, and limit licences – because ultimately, social stability will be impacted

While there are many who disagree with some (if not all) of the notions above, we do think they carry some weight and worth for anyone in the bright side to ponder.

Ultimately, technology platforms can be used for good causes, and very bad ones. It is important that the regulators make sure that rules are clear, and good ones can actually sustain their businesses.