Introduction: Regardless of how “successful” each company describes its business model, from the perspective of the most essential income, the main source of revenue and profit for the “big three” of financial technology is credit business.
Origin丨21st Century Business Herald (ID: jjbd21)
Author丨Bao Hui, Wu Shuang
Editors丨Zhou Pengfeng, Chen Siying
Figure / Figure bug
A butterfly in the tropical rainforest of the Amazon River basin, flapping its wings, may cause a tornado in Texas in two weeks.
The butterfly effect abounds in economic life, but no one is as strong and widespread as the shock wave of the suspension of listing of ants, and the subsequent far-reaching impact is even harder to estimate.
On the evening of November 3, the listing of Ant Group on the A-share Science and Technology Innovation Board and the Hong Kong Stock Exchange was suspended due to a series of regulatory interviews and other reasons. According to the original plan, Ant Group will be listed simultaneously in Shanghai and Hong Kong on November 5, and the market value will exceed 2 trillion yuan, making it the largest IPO in the history of the global capital market.
If there were no such accidents, Ant Financial, Lufax and JD.com would have been the three giants of China’s financial technology that collectively landed on the capital market this year.
Before and after the suspension of Ant’s listing, the “Interim Measures for the Management of Online Small Loans (Draft for Solicitation of Comments)” was also published. The “lethal effect” is obvious. Dong Ximiao, chief researcher of the Zhongguancun Internet Finance Research Institute, told the 21st Century Business Herald reporter on November 5 that at present, the new situation of financial technology supervision has the greatest impact on Ant Group, followed by Lufax, and JD Digital has relatively little influence.
“First, Ant Group has the most financial licenses. The financial control measures implemented on November 1 have a great impact on it. To meet the requirements of the financial control measures, major adjustments to the organizational structure and business sectors are required. Jingdong Digital and Lu There are not as many financial licenses as ants under the gold exchange, and the financial control measures have less impact on it. Second, the profit of Ant Group mainly comes from the lending of small loan companies, and the Internet small loan method has hit it hard. Jingdong Digital’s online small loan business The proportion is small and the impact is small.” Dong Ximiao said.
On November 6, the financial stability report released by the central bank once again clarified that it will speed up the improvement of the financial technology regulatory framework in line with my country’s national conditions, resolve regulatory gaps and regulatory arbitrage caused by lagging regulations, accelerate the construction of digital regulatory capabilities, and improve regulatory penetration. Permeability and professionalism. Mountain rain is coming.
Comparison of “Big Three” business models
In terms of business models, the three companies have inherently significant differences.
Relying on Ali’s ecology, Ant Group uses Alipay as the traffic portal to expand the payment scenarios to comprehensive online and offline life scenarios such as people’s clothing, food, housing, transportation, etc., and then use financial services such as credit, wealth management and insurance and technology output to realize traffic monetization. Its customer groups include individuals , Financial institutions, general enterprises, and government departments.
Backed by the JD Group, JD Digital is taking the 2B path, focusing on digital technology, providing digital solutions for financial institutions, merchants and enterprises, governments and other customers.
Relying on Ping An Group, Lufax started with the P2P online loan business, focusing on the two major businesses of retail credit and wealth management, with retail credit as the main source of income and profit.
Echoing the flow is valuation. Before the regulatory interview, Ant Group was valued at more than 2 trillion yuan, and JD Digital was valued at more than 200 billion yuan. Lujin, which has been listed on the New York Stock Exchange, had an estimated market value of 33.79 billion US dollars at the closing price on November 6, which was about 2230. 100 million yuan.
Regardless of how “prestigious” each company describes its business model, from the perspective of the most essential income, the main source of revenue and profit for the “big three” of financial technology is credit business.
According to data from the Ant Group’s prospectus, its micro-credit technology platform revenue has increased from 25% in 2017 to 39% in the first half of 2020, becoming the company’s largest business; the combined revenue of JD Digital’s JD Gold Bar and JD White Bar The proportion has become the largest business in the first half of 2020, increasing to 43%; Lufax’s retail credit has been the main source of income in the past three years and has been on the rise, accounting for more than 80% in both 2019 and the first half of 2020.
Specific to the types of loan business, the three companies have consumer credit and small and micro credit, but the focus is different. Ant Group and JD Digital mainly focus on consumer credit, while Lujin focuses on small and micro credit.
According to data from the prospectus, Ant Group’s credit products include Huabei, Boraibe, and small and micro credit. In the first half of 2020, its consumer credit products accounted for about 80%; JD Digital’s consumer credit products include JD Baitiao and JD Gold bars, and small and micro Credit products include Jingbaobei, Jingxiaodai, Jingcai, etc. Jingdong Baitiao and Jingdong Gold Bar are the main products of the company’s credit business; Lufax’s main products include secured loans and unsecured loans, of which secured loan borrowers are small For micro businesses, unsecured loans include small and micro businesses and personal consumption. Of the new loans in the first half of 2020, 69% are loans to small and micro businesses.
In terms of customer acquisition channels, Ant Group has deployed online consumption scenes through Taobao, Tmall, Taopiao, Amazon, and Vipshop, and offline consumption scenes through Walmart, Carrefour, and Yonghui Supermarket. JD Digital uses apps such as JD.com and WeChat as scenarios for customer acquisition.
Due to the lack of consumption scenarios, Lufax mainly relies on direct sales, cooperative channels, and online and telephone marketing to acquire customers. As of the end of the first half of 2020, the company has more than 56,000 sales staff. Lufax has 48.2%, 39.8%, and 12.0% of customers through direct sales, cooperative channels, and online and telemarketing, respectively. Ping An Ecosystem in the cooperative channel Accounted for over 90%.
In recent years, the cost of acquiring customers for Lufax’s credit business has risen sharply. In 2019 and the first half of 2020, direct sales expenses increased by 78% and 41%, respectively, and cooperative channel expenses increased by 111% and 51%, respectively. The company’s customer acquisition cost rate has shown an upward trend, and the credit business customer acquisition cost/retail credit facilitation service fee has increased from 15% in 2017 to 28% in the first half of 2020.
In terms of breakdown, Lufax’s retail credit facilitation service fees include loan facilitation service fees and post-loan service fees. Loan facilitation services mainly include customer evaluation, technical support and loan matching. Post-loan services include repayment collection, Services such as data collection and management. From 2017 to 2020H1, the proportion of Lufax’s post-loan service fees increased from 67% to 79%, which is the main source of income.
In terms of the number of borrowers, Ant Group has the most. During the 12 months ended June 30, 2020, approximately 500 million users received consumer credit through Ant Group. In the first half of 2020, the annual active number of JD Baitiao was 55.45 million, and Lufax’s cumulative number of borrowers was 13.43 million.
However, in terms of the amount of money, Lufax is the largest, with an unsecured loan of 100,000 to 150,000 yuan and a mortgage of 400 to 650,000 yuan, far exceeding the other two. Ant Huabei’s per capita loan balance is 2,000 yuan, and the average loan size of JD gold bullion customers is 18,000 yuan in the first half of 2020.
At present, the credit business income of Ant Group and Lufax is in the same order of magnitude, far exceeding JD Digital.
From 2017 to 2019, Lufax’s retail credit business revenue was the highest among the three companies, with 15.336 billion yuan, 29.576 billion yuan, and 39.325 billion yuan. In 2019, Ant Group’s credit business income rose sharply, and in the first half of 2020, it will overtake 45.972 billion yuan for Ant and 20.754 billion yuan for Lufax. Jingdong Baitiao, the main credit product of Jingdong Digital, is only 1.794 billion yuan, and Jingdong gold bullion is 2.636 billion yuan.
In the first half of 2020, Ant Group’s net profit is also far ahead of the other two. Among them, Ant’s net profit was 21.923 billion yuan, Lufax’s 7.272 billion yuan, and JD.com lost 680 million yuan.
But in 2018, the net profit of the three companies was not Ant, but Lufax. In 2018, Lufax’s net profit was 13.317 billion yuan, while Ant was 2.156 billion yuan and JD Digital was 128 million yuan. The reasons for the “top number” change of ownership are obvious. Lufax has withdrawn from P2P products in 2019, while Ant Group has started its efforts in 2019, and credit business income has risen sharply.
It is worth noting that in terms of the quality of credit assets, both Ant and Lufax have seen a clear upward trend in their credit overdue rates in recent years. Take 90 days as an example. As of the end of 2017, the end of 2018, the end of 2019 and the first half of 2020, Ant’s consumer credit balance overdue rate was 0.68%, 1.01%, 1.05%, and 2.10%, respectively. The credit balance of small and micro operators was overdue. The rates were 1.10%, 1.67%, 1.57%, 2.05%. Lufax’s general unsecured loan overdue rates are 0.7%, 1%, 1%, and 2.1% respectively. The overdue rates of small and micro credit assets of JD Digital in the same period were 0.83%, 2.10%, 1.33%, and 0.38%.
What is the impact of new regulations on online small loans?
There is no doubt that the online microfinance supervision measures will become one of the most influential new regulations for financial technology giants that mainly rely on credit income.
In principle, small loan companies should not operate across regions, but in recent years, some companies have resorted to online small loan businesses to break through the restrictions of operating regions and expand their business to the whole country; on the other hand, they have incorporated funds through asset securitization and other methods to break through financing Leverage constraints, magnify the leverage. Due to the lack of nationally unified and clear online microfinance business rules, local governments have different standards and standards for microfinance companies’ online microfinance approval, which also caused inter-regional arbitrage problems.
For example, there are currently about 250 small loan companies operating online small loan business, of which nearly 100 are registered in Guangdong Province and Chongqing City. Two small loan companies under Ant Group are both registered in Chongqing. In addition, Jiangsu, Zhejiang, Shanghai and Jiangxi provinces also have many small loan companies operating online small loan business.
Therefore, on November 2, the China Banking and Insurance Regulatory Commission and the People’s Bank of China jointly issued the “Interim Measures for the Administration of Online Small Loans (Draft for Solicitation of Comments)” (hereinafter referred to as the “Draft for Solicitation of Comments”), in terms of operating areas, loan limits, and joint loans , Financing leverage, registered capital, etc., put forward a number of requirements, the previous regulatory policies were comprehensively improved and adjusted, focusing on five aspects:
First, it is emphasized that the online microfinance business should be operated in the provincial administrative region. As a major shareholder, the number of small loan companies that participate in cross-provincial online small loan business shall not exceed two, or the number of small loan companies that hold a controlling stake in cross-provincial online small loan business shall not exceed one.
This rule will cause the Ant Group, which owns two small loan companies, to make adjustments. Regulatory requirements require that the Internet operating platform and registration place be the same, and even if the China Banking and Insurance Regulatory Commission approves its inter-provincial operation, only one can be retained.
Second, online microfinance should adhere to the principle of small amount and decentralization. Personal loans do not exceed 300,000 yuan and the lower one-third of the three-year annual income, and institutional loans do not exceed 1 million yuan. This is a requirement specifically for online small loans. The “lethality” still depends on how the implementation rules are formulated, such as how the annual income is defined.
Third, limit the proportion of joint loans for online small loans. In a single joint loan, the proportion of small loan companies operating online small loan business shall not be less than 30%, in order to restrain small loan companies from expanding too quickly through joint loans.
The credit business of Ant Jingdong and Lufax is mainly based on asset-light loans + joint loans. Third-party financial institutions are their main sources of funds. As of the first half of 2020, the proportion of on-balance sheet loans of Ant Group, JD Digital Technology and Lufax was only 2%, 4% and 0.7% respectively. Under the joint lending model, small loans or consumer finance companies under the three companies only provide A small part of the funds are loaned together with other financial institutions.
“Among the small loan companies under the Ant Group, in issuing joint loans with some small and medium-sized banks, their capital contribution ratio is as low as 5%, and the lowest is only 1%. According to estimates, with the help of the joint loan model, Ant Group passed 36 billion on-balance sheet Approximately 1.8 trillion yuan of joint loans have become the most important tool for its credit expansion, and it also planted greater financial risks. After limiting the proportion of joint loans, Ant Group’s credit expansion model will be severely hit, which has a great impact on it. “Dong Ximiao said.
There are also different views on this market. Wu Xiaoping, a visiting professor at Zhejiang University and former executive general manager of CICC’s institutional business and wealth business, told the 21st Century Business Herald reporter on November 6 that “the contribution ratio of joint loans shall not be less than 30%. It is indeed a big challenge for Ants, because it is at least 100 billion yuan of new registered capital requirements. But judging from the amount of financing proposed by Ant Financial this time, Ants still have the ability to find so much money from the market. Although Now that the IPO has been suspended, I believe that Ants can still obtain funds in the interbank market and other financing markets.”
In the specific implementation, it still depends on how the regulatory rules define the boundary between loan assistance and joint loans, and whether the loan assistance model can bypass this rule.
Fourth, restrict the financing leverage of small online loans. It is clarified that small loan companies operating online small loan business shall not exceed 1 times their net assets through bank loans and shareholder loans; financing through asset securitization and bond issuance shall not exceed 4 times their net assets. It can be seen that small loan companies operating online small loan business have a total leverage ratio of 5 times.
This is consistent with the “Notice”‘s requirements on the leverage ratio of small loan companies, but it has a more obvious impact on the small loan companies under the Ant Group, because it strictly limits its access to funds through asset securitization and promotes its scale expansion. At the same time, the “Draft for Comments” also returned the authority to adjust the leverage ratio of online small loans to the China Banking and Insurance Regulatory Commission to prevent local regulatory deregulation from causing inconsistent standards.
Fifth, raise the capital threshold for operating online small loans. The registered capital of small loan companies engaged in online microfinance is no less than 1 billion yuan, and the registered capital of small loan companies that operate online microfinance across provinces is no less than 5 billion yuan. But this is not very difficult for the “Big Three”.
Dong Ximiao said that the “Draft for Solicitation of Comments” is expected to be released soon after the public solicitation of comments. This will help standardize the operation of online small loan businesses, guide small loan companies to return to the nature of small loans and improve service capabilities. At the same time, it will better serve the real economy. “If the relevant measures are officially implemented, the online microfinance business will usher in a round of major adjustments. Large Internet companies that wantonly expand through the online microfinance business will be significantly impacted. This may be one of the reasons why Ant Group has been suspended from listing. ”
Financial technology regulation shift?
Figure / Figure bug
The industry generally believes that the meeting of the Financial Committee of the State Council on October 31 is a sign of a change in the trend of financial technology regulatory policies. The meeting clearly emphasized that the current rapid development of financial technology and financial innovation must handle the relationship between financial development, financial stability and financial security. We must not only encourage innovation and promote entrepreneurship, but also strengthen supervision, and fully incorporate financial activities into supervision in accordance with the law to effectively prevent risks. Supervisory departments must do their work conscientiously and treat similar businesses and entities equally.
Domestic financial supervision is still dominated by institutional supervision, and there may be room for arbitrage in business. The Ant Group is considered to be familiar with this because of its flexible mechanism.
The draft of the management measures for online small loan companies reflects the idea of shifting from institutional supervision to functional supervision and behavioral supervision. If financial technology companies are involved in bank-like deposit and loan business, they must also have reserves, capital, and leverage. , Liquidity and other regulatory requirements, maintain regulatory consistency, and reduce regulatory gaps and regulatory arbitrage.
This will put Ant and other financial technology companies on the same level of supervision as licensed financial institutions such as banks. In the future, an important part of Ant Financial’s profit, that is, loan assistance business and off-balance sheet assets ABS, etc. may also refer to on-balance sheet loan management.
The Financial Committee meeting held on October 31 also emphasized the need to improve the fair competition review mechanism, strengthen anti-monopoly and anti-unfair competition law enforcement and justice, and enhance the comprehensive market supervision capabilities. It is necessary to establish basic systems and standards for data resource property rights and transaction circulation, and strengthen the protection of personal information. Industry analysts believe that anti-monopoly and strengthening the protection of personal information-all point to the key points of financial technology companies such as Ant Group.
In addition, the financial control group management method that has not yet issued detailed rules is another Damocles sword hanging on the heads of financial technology companies such as Ant.
Although the specific rules have not yet been issued, the “Trial Measures for the Supervision and Administration of Financial Holding Companies” clarify that the capital of financial holding companies, financial institutions controlled by the group, and the group as a whole should be commensurate with the scale of assets and risk levels, and the level of capital adequacy should be based on consolidated management. Basic calculations. It can be seen that the regulatory constraints are mainly leverage control, large risk exposure management and so on.
On November 6, the financial stability report issued by the central bank once again clarified that the financial management department will do a good job in overall planning and coordination, strengthen the top-level design and overall layout of supervision, and accelerate the improvement of the financial technology regulatory framework in line with my country’s national conditions.
First, based on innovative regulatory tools, launch financial technology innovation regulatory tools that meet my country’s national conditions and are in line with international standards as soon as possible;
The second is to take the regulatory rules as the core, and timely introduce targeted regulatory rules to ensure that the financial technology business has rules to follow in business compliance, technical security, risk prevention and control, etc., and resolve regulatory gaps and regulatory arbitrage caused by lagging rules And other issues;
The third is to use digitization as a means to build a digital regulatory reporting platform, adopt artificial intelligence technology to realize formalization, digitization and proceduralization of regulatory rules, accelerate the construction of digital regulatory capabilities, and enhance regulatory penetration and professionalism.
Fintech companies such as Ant, Lufax, and JD.com are still uncertain how they will develop their businesses in the future and how they will adapt to the new regulatory trend.