Internet financial institutions actively deploy: P2P introduces blockchain technology

Compared with the cautious attitude of traditional domestic banking and insurance institutions, Internet financial institutions are making frequent moves in the field of blockchain finance.

In an exclusive interview with a reporter from 21st Century Business Herald, Qiao Ke, founder and CEO of Zhongtuobang, a domestic mutual aid protection platform, said that they have tried to introduce blockchain technology into mutual aid protection plans to solve problems such as information asymmetry and lack of trust in the mutual aid protection operation process.

The reporter learned from multiple sources that many Internet financial institutions have also introduced blockchain technology into P2P and supply chain finance businesses to help borrowers and lenders understand each other's repayment status more comprehensively and timely, and build a better credit rating system.

Blockchain Finance's Journey in China

The so-called mutual aid protection is essentially a kind of economic mutual assistance and risk offset between members, which belongs to the community economic behavior based on mutual assistance. Specifically, members voluntarily join and withdraw freely. When they are healthy, they can use a few yuan of change to help members in need, and when they are sick, they can also get feedback and help from others.

In Qiao Ke's opinion, before the introduction of blockchain technology, mutual aid protection faced many credit problems in the actual operation. Usually, when a participant is sick, he needs to prove to all members the time when he joined the mutual aid protection plan and whether he meets the mutual aid threshold. However, this information is usually only known to him and the platform, and it may be tampered with, and it is impossible to gain the trust of other participants. But after the introduction of blockchain technology, when a participant is sick, all members can find out the time when he joined the mutual aid protection plan through channels such as public announcement or inquiry. Since this data cannot be tampered with on the blockchain platform, the problem of information authenticity is effectively solved.

In fact, the advantages of blockchain in terms of credit transparency and immutability have also been used by many Internet financial institutions in the fields of P2P and supply chain finance.

In the opinion of a business manager of a P2P institution, the current fraud risk accounts for as much as 60%-70% of bad debts in P2P business. The main reason is that the fraud customer lists of various platforms are difficult to share, and the platforms themselves are unable to collect sufficiently comprehensive information on borrowers' previous loans. However, under the blockchain model, platforms can share information between platforms in a timely manner, as well as observe friends' evaluation of him on the blockchain platform and previous financial transaction records, to determine whether he has fraud risks.

In the view of many P2P institution personnel, it seems forward-looking for Internet financial institutions to take the lead in deploying blockchain technology, but in fact they are also facing the risk of being revolutionized because the decentralized nature of blockchain technology will also pose a huge impact on Internet financial institutions.

Take the mutual aid protection plan as an example. The mutual aid protection plan is not an insurance product. It does not have a complex rate actuarial model and does not cover the claim amount through premium income. Instead, it naturally forms a corresponding appropriate rate by segmenting the participating communities in terms of region, age, etc., so as to attract more participants to join, and finally share the account deductions while achieving the maximum mutual aid protection amount. Among them, the service responsibilities and risk pricing functions undertaken by Internet financial institutions that initiate mutual aid protection are constantly weakened. Ultimately, users can initiate mutual aid protection plans on their own on the blockchain platform, and no longer rely on the risk pricing and services of intermediaries.

Similar impacts have also occurred in the P2P and supply chain finance sectors, where borrowers and lenders can determine their own lending rates based on past financial transactions and borrower credit data on the blockchain platform, eliminating the need for risk pricing and risk control measures by Internet financial institutions, thereby further reducing credit costs.

"However, although this decentralized model seems to have broad prospects, there are many problems in its actual operation. For example, in the early days of the U.S. P2P industry in 2007, many U.S. P2P institutions tried to allow lenders and borrowers to negotiate interest rates based on the borrowers' previous credit records. As a result, many borrowers were charged very high interest rates but delayed repayment, and there were many fraud problems." The founder of a domestic P2P institution said that the development history of Internet finance in Europe and the United States shows that even if blockchain has greatly improved the authenticity and transparency of borrower information, the risk pricing and risk control measures of third-party institutions are still indispensable.

The “bottleneck” of blockchain finance

In the view of many people in the financial industry, some domestic Internet financial institutions are actively introducing blockchain technology, but this does not mean that this technology will be quickly popularized in the domestic Internet financial field.

The reason is that there are still many operational difficulties in blockchain financial technology in the P2P field.

First of all, blockchain technology is generally still in the experimental stage, and its technical perfection and market effect need to be further examined. As a result, more and more Internet financial institutions are following the example of traditional banking and insurance institutions and taking a wait-and-see attitude towards various emerging blockchain financial businesses.

Secondly, blockchain is a distributed data record, which makes it seem that it does not have economies of scale. In particular, blockchain technology has low operational efficiency in handling large-scale calculations and real-time data updates, and may not be able to meet the needs of P2P or supply chain financial business expansion and real-time updating of transaction data.

Third, although blockchain technology has the property of immutability of information, with the development of technology, it is possible that some hackers will find ways to steal or tamper with user blockchain data, which will inevitably lead to moral risks in the financial services sector.

More importantly, given that blockchain technology is a brand-new technology, it will take some time for users to understand and recognize blockchain. This leads to high marketing costs for blockchain technology, which causes concerns among many Internet financial institutions.

A reporter from 21st Century Business Herald noted that the original intention of some domestic Internet financial institutions to introduce blockchain technology is to solve the pain points of current business service processes, thereby improving customer service experience or enhancing transaction trust. They do not regard blockchain technology as a tool to subvert traditional financial business.

"Especially when Internet finance regulation is becoming stricter, many institutions are still worried that relevant departments may use blockchain finance as a new tool for policy arbitrage." The founder of the domestic P2P institution mentioned above said that, for example, many financial institutions take advantage of the blockchain's credit immutability and package it as a credit endorsement for the platform's perfect credit reporting and risk control system, which will bring new operational risks.

Fang Liang, CTO of iQianjin and former chief architect of Lending Club, believes that the current Internet finance industry is in a transition period from disorder to orderly development. Neither the regulatory environment nor the current market competition can provide a suitable soil for the popularization of blockchain technology. In addition to proving its technical maturity and application stability to the market, blockchain technology should also demonstrate its reliability in terms of legal compliance operations.

In the view of many people in the financial industry, before the corresponding regulatory system for blockchain finance is established, Internet financial institutions may wish to build a new scenario-based financial service value chain through blockchain technology to further improve customer financial service experience in order to find blue ocean markets.