【Technology】“Small Is Beauty” for P2P lending platforms
Although the Hong Kong Securities and Futures Commission (SFC) has tightened regulations on peer-to-peer (P2P) lending platforms, some players still see the potential of a niche market with a small amount of financing to small and medium companies and college students.
In May the SFC reviewed and tightened regulations on P2P lending companies, saying that a borrower cannot raise loans from more than one lender. Under the new policy, Welab foresees the difficulties of operating P2P lending platform in Hong Kong, they gave up the P2P mode and developed a traditional lending business model according to a report of Hong Kong economic Journal. However, some other firms, such as Monexo and Ufinance, decided to continue with their P2P lending business, targeting the millennial market.
Unlike traditional ways of lending and borrowing, peer-to-peer lending platforms bypass traditional intermediary, such as banks, matching borrowers and lenders directly online. These loans arranging companies set their targets towards different parties that might be college students or small and medium enterprises’ (SMEs) employers and employees.
Monexo mainly provides loan-matching services to the SME community, which has a HK$33 billion credit gap based on a report by the World Bank. Since Monexo has no physical branch and operates at lower costs, it manages to assist lenders achieving a higher return, whilst lowering the interest costs of borrowers.
Ufinance is also an operator of P2P platforms but offers instant cash lending service mainly to college students at a relatively low fee and flexible settlement period. Since September last year, the company has lent out an accumulated amount of HK$1.6 million to 60 university students, among which the largest lump sum handled was HK$30,000. Mr Stephen Lai, one of the three post-90s owners of the platform, said the firm provided an intermediary service to match borrowers and lenders with the borrowing or lending amount and interest rate stated in the application beforehand. The firm will charge borrowers 0.05 percent of the principal amount as the service fee for using the platform.
Many lenders using the platform will take it as a better investment option than bank deposits because the current return for deposit is not that attractive. “Many banks provide less than 1 percent of interest for bank deposits. This is why investors turn to lending out their money on our platform so as to catch up with the inflation rates,” Mr Lai added.
Mr Lai pointed out that the platform was just a loan matchmaker between lenders and borrowers so their operating cost was lower. However, by only receiving 0.05 percent service charge as revenues, Mr Lai said the company was currently depending on an approximate HK$10 million investment from an investor to sustain their business. He hopes the company can make a profit for the investor in the future.
P2P lending platforms put the traditional loan companies under threats.
The firm filtered applications in various parameters, such as by looking at the students’ working experience and the degree they were earning, he said. Judging from the borrowers’ earning potential from their degrees and colleges, the lending out amount and interest rates will be different. Mr Lai mentioned the firm has set the procedures of dunning for debts, ranging from sending messages for the late repayment to handing over the case to the court. “So far, there is no defaults recorded for our start-up though,” he said.
There is another concern of P2P platforms that cash-strapped youths are required to give in the information of merely identity card, student card issued by universities and proof of present address but not substantial financial proof to raise loans. It might create a cash crunch trap for young people who do not even have income or a job.
Mr. Simon Lee Siu-po, the assistant dean of undergraduate studies of Business School at Chinese University of Hong Kong, said students should be aware of the marketing tactics that such lending platforms use to promote their business, for instance, some claimed that they were “asking for no interest in loan arrangement”.
Mr Lee said as borrowers are not required to apply for loans in person on the P2P lending platforms, they can easily make loans before taking time to consider their capability of loan repayment. If student debtors are not able to settle their repayments, punitive interest might be charged. Mr Lai said an extra interest rate of 0.05 percent per month will be charged as punishment for late settlement.
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