LendingClub co-founder: Will blockchain make Alipay unemployed?

On July 18, during the financial technology summit LendIt, Soul Htite, CEO of Dianrong.com and co-founder of LendingClub, accepted an exclusive interview with The Paper. During the interview, he put forward novel viewpoints such as "blockchain will make Alipay unemployed", "LendingClub's treatment of its founders is too harsh", and "acquaintance lending will not work".

Soul Htite is the co-founder and former technical director of LendingClub (LC), the world's largest online lending platform. He once worked at Oracle Corporation, responsible for design and development. In 2012, Soul Htite brought LendingClub's experience to China and founded Dianrong.com.

Soul said that he is currently working in the technology department of LendingClub. As the partner and best friend of Renaud Laplanche, the former CEO of LendingClub, Soul thinks highly of him: "I think he is the most talented person in the world, especially in the technology finance industry. Without him, technology finance would not be what it is now, at least in the United States. In this sense, he is the father of technology finance."

(Soul Htite, CEO and founder of Dianrong.com)

Soul said that Laplanche did make a mistake, but the punishment was obviously too severe because if it happened to the CEO of JPMorgan Chase or Citigroup, it would never lead to his resignation.

Will blockchain make Alipay unemployed?

At the summit on the morning of July 18, Yao Yudong, director of the Financial Research Institute of the Central Bank, said: "Blockchain technology may be a bubble."

On the afternoon of the 17th, Zhang Licheng, director of Alibaba Cloud’s financial business division, also told The Paper that the application scenarios of blockchain are currently limited. “Although everyone is currently researching blockchain, the real investors in blockchain companies are VCs (venture capital), and no one knows whether it can be successful. The risk factor is high.”

But Soul doesn't think so. He said with a smile, "Ali is afraid of blockchain because it is afraid that others will study it and make payments between people free, so that Alipay will have no meaning to exist."

Soul believes that blockchain has a disruptive effect on the payment industry. With blockchain, cash flow between people goes directly through banks without going through a third party. If all banks use blockchain, Alipay and WeChat Pay will be useless. For example, people who own Bitcoin can send Bitcoin to anyone in the world without going through a payment company, and Bitcoin is built on the basis of blockchain.

But Zhang Licheng disagrees. He believes that the efficiency of blockchain accounting is low, and the blockchain only updates data once in a while, which causes time delays. "All nodes record the same information. When you check, it is very likely that the information has not been synchronized to that node, and the data you check is old. However, Alipay completes the payment instantly."

Zhang Licheng said that not all financial businesses are suitable for blockchain, and it is impossible for one payment method to cover all application scenarios. "Just like Alipay, no matter how powerful it is, is only used in the e-commerce field; Tenpay, no matter how powerful it is, is basically used for social payments; there are more than 100 third-party payment companies, and they are still alive."

In addition, he is cautious about the use of Bitcoin based on blockchain technology. He cited an example of Bitcoin's application scenario: hackers threaten banks with D-DoS attacks, but do not accept bank transfers for fear of exposing their identities, so they use Bitcoin for payment. "So Bitcoin payment also has some underground scenarios, and not everything can be paid with Bitcoin."

Soul said that Dianrong.com will continue to invest 30-40 million US dollars in the development of blockchain applications in the next two years. On the one hand, it is to save third-party payment, reduce borrowing costs and increase yields; on the other hand, it is convenient for both parties to sign contracts directly on the public chain, effectively preventing false contracts and repeated fraud. In this process, P2P can also successfully find high-quality borrowers, achieving three goals at one stroke. At present, the Dianrong.com blockchain network has been laid.

As for when to go public, Soul said it would wait until its business volume is larger than Yirendai’s before going public. “I believe that with the help of blockchain, we will be able to exceed Yirendai’s business volume in two years or less. I’m not talking about CreditEase, but Yirendai under CreditEase, which currently has a business volume of $1.2 billion.” “LendingClub’s treatment of its founders is too harsh”

On May 9 this year, Lending Club, a benchmark in the US P2P industry, discovered in an internal assessment that $22 million in loans were sold illegally and the transactions did not comply with the company's relevant regulations. The investigation led to the resignation and dismissal of its co-founder, CEO Renaud Laplanche and three senior executives.

Soul, Renaud Laplanche's partner and best friend, thinks highly of him: "I think he is the most talented person in the world, especially in the technology finance industry. Without him, technology finance would not be what it is now, at least in the United States. In this sense, he is the father of technology finance."

Soul said Laplanche did make a mistake, but the punishment was too severe because if it happened to the CEO of JPMorgan Chase or Citigroup, it would never lead to his resignation.

He believes that the reason why the board of directors "embarrasses" Laplanche is because of the board's "arrogance and pride". He introduced that "there are three very special members on the board of directors of LC, namely former US Treasury Secretary Larry Summers, KPCB partner Mary Meeker, and former Morgan Stanley CEO John Mack."

Regarding this, Jason Jones, co-founder and president of LendIt, also told The Paper that “the board of directors of Lending Club believes that it is necessary to deal with this matter seriously and impose a more severe punishment on the president so that others can see that Lending Club attaches great importance to compliance.”

Soul revealed in an exclusive interview that he learned from daily calls with Laplanche that Laplanche still has a chance to return to LendingClub, but he cannot yet tell how he will return.

Lending among acquaintances doesn’t work

When LendingClub was first established in 2006, it tried to establish a lending relationship among acquaintances through Facebook's acquaintance network. However, six months later, LendingClub abandoned this model.

Soul, one of the managers of the company at the time, explained the reason: "This model doesn't work. Money is a very personal thing. If my brothers and sisters ask me to borrow money, I will lend it to them, but I won't tell them: You must pay it back on the 14th! What will I do if I don't pay it back after agreeing to pay it back in 6 months? I will do nothing. This is not a loan, this is help, to help my relatives and friends. But what we discuss in online lending is business, and business has rules. If you agree to pay it back on the 14th, you must pay it back. I encourage everyone to borrow money from relatives, but don't call this money a loan."

The following is the full text of the interview on July 18:

Regulators have to learn something before they can come up with regulations. So first we make driverless cars, then bring them to the regulators and say, "Look, this is our new product, how should you regulate it?" instead of talking about regulation before anything has even appeared.

The Paper: You left LendingClub, the largest Internet finance company in the United States, before founding Dianrong.com. I am very interested in your life choice. When you founded Dianrong, the Chinese government was cautious about opening up the private lending sector. Why did you take this risk?

Soul Htite: Actually, I haven't completely given up my job at LendingClub yet. In fact, I'm still working in the technical department of LendingClub. There are two kinds of people in this world. One kind likes to build big companies with 5,000 employees reporting to them, and the other kind likes to create new things, see them born and develop, and don't care who is in charge. I am the second kind of person. After working at LendingClub for 5 years, I wanted to find something exciting to do. At that time, there was an opportunity to expand LendingClub's business in China, and there was also a call from the Chinese side for us to open a branch in China. But that didn't work out because LendingClub was planning an IPO at the time and was very busy.

But from that time on, I came into contact with China and often came to Shanghai. It was at this time that I met my partner Kevin (Guo Yuhang, co-founder of Dianrong.com). Looking back today, it was a mistake for LendingClub not to open a branch in China at that time. At that time, I told LendingClub that we wanted to do this in China, and half of them agreed, and half disagreed. So the first batch of funds for Dianrong.com came from some of the shareholders of LendingClub at that time.

After we came to China, we never did anything against the law. We always followed the government's guidance and changed our business model according to the government's opinions. As far as I know, no government in the world has said that P2P is illegal. Similarly, there is no law that says Alibaba's payment function is illegal.

Many people believe that the regulatory rules of regulators can be established quickly, but in fact, regulators, like ordinary people, need to see the model with their own eyes, study the model, and then say "YES" or "NO" to the model. If we live in Europe, we can't do anything, and no new business model can be born in Europe. Whether it is Germany, France or Spain, the general environment is not friendly. This is why many outstanding entrepreneurs and entrepreneurs flocked from Europe to California and the United States. Because in the United States, innovation and creation are encouraged. For example, many companies today are researching driverless cars. Once an accident occurs, who will be responsible? So regulators must learn something before they can produce regulatory regulations. So first we make a driverless car, and then bring it to the regulator, "Look, this is our new product, you see how to regulate it." Instead of talking about regulation before anything has appeared.

The Paper: Dianrong.com previously announced that it would start making profits this year. Why did it start making profits this year? In what areas did it invest previously?

Soul Htite: There are two options. Profit is a good thing, but for me, the growth of the company is more important. Even though we are not 100% sure that we can make a profit this year, we will try our best to make it this year. If we reduce expenses, hire fewer new people, do not enter Korea, and do not enter other countries, we can make a profit, but we have to make a choice, should we continue to invest, or should we keep the profit? Because when you want to make something new, there must be a price, and it will take one or two years to wait for these expenses to pay off.

If we use blockchain, we won’t need Alipay. The cash flow between us will go directly through the bank without going through a third party. If all banks use blockchain, Alipay will be useless.

The Paper: You are researching new blockchain technology. How much does it cost you?

Soul Htite: In the next two years, we will spend about 30-40 million US dollars on blockchain technology, and this is just the basics. This technology will bring disruptive changes to the financial sector.
The Paper: So when can we see the rewards?

Soul Htite: I think we can see the return within one or two years. Just like all other software technologies, once developed, it can be used many times. That is the power of technology, the power of software.

The Paper: But some people in the industry are also worried that there is a bubble in the blockchain field, and that it would be very risky if too much time and money were invested.

Soul Htite: Really? The birth of any technology in the world takes time and money, and every technology has its uses.

The Paper: For example, Alibaba Cloud executives said that currently only VCs dare to invest in blockchain.

Soul Htite: (laughs) Maybe Alibaba doesn’t want others to study blockchain. I’m not sure, it’s just a possibility. So is Alibaba also studying blockchain?

The Paper: Of course. Alibaba will hold a “fireside chat” on blockchain this afternoon.

Soul Htite: Then let me tell you why Alibaba is afraid of blockchain. One thing blockchain does is to make payments between people free. Today, if we are all Internet users, we have to pay the first payment through Alipay or WeChat Pay, which requires us to pay fees to the two payment companies. If we transfer money between us, the cost of Alipay is 1 yuan, and it will charge us 2 yuan and then earn 1 yuan. If we use blockchain, we don’t need Alipay. The cash flow between us goes directly through the bank without going through a third party. If banks all use blockchain, Alipay will be useless.

The Paper: What about UnionPay?

Soul Htite: UnionPay can replace Alipay. UnionPay payment still requires a card, while Alipay and WeChat are conducted on the Internet. If UnionPay also becomes completely online, there will be no room for Alipay to survive. So blockchain will also have a disruptive effect on the payment industry. Think about it, people who own Bitcoin can send Bitcoin to anyone in the world without going through a payment company, and Bitcoin is built on the basis of blockchain.

The Paper: Has Dianrong.com achieved any results in its research on blockchain?

Soul Htite: We have been committed to promoting blockchain technology because borrowers currently need to pay third parties, which increases borrowing costs and reduces investors' returns. We hope that the process in between is free.

The Paper: So how do you profit from this?

Soul Htite: If we build a blockchain network, which we have already built, when users use it, for example, if you are a person who wants to rent a house, you tell the bank, I am from Hunan, I want to live in Shanghai for 6 months, but I don’t have 6 months of rent at the moment, give me a loan, I have a legitimate job to repay, the bank generally won’t give you a loan. So you will come to Dianrong.com, and Dianrong.com is also willing to accept it, so you show your contract, but it is too easy to forge contracts in China. The bad guys may get the loan and run away, and they can use this method to cheat ten times. If there is a blockchain, you and the landlord sign the contract on the chain separately, and then we can confirm 100% that the contract is true. I don’t need to see you or the landlord, but we can give you a low-interest loan, and the middle link is free. And from this process, we also found high-quality loan customers. For P2P companies, the most important thing is to distinguish whether a person is a high-quality customer or a liar.

The Paper: When will the blockchain function be launched?

Soul Htite: We have already cooperated with a rental company and let them use our network to sign contracts. The infrastructure of this technology has been built. Blockchain is a very mature technology.

The Paper: Industry competitors such as Yirendai have already been listed on the New York Stock Exchange, but Dianrong currently has no plans to go public. Why?

Soul Htite: We will definitely go public after we become bigger than Yirendai. I believe we will be able to surpass Yirendai in terms of business volume in two years or less. I am not talking about CreditEase, but Yirendai under CreditEase, which currently has a business volume of US$1.2 billion.

Talking about P2P running away: It is extremely stupid. I really don't understand how someone can cheat money like this. Everyone will come after them. It is too stupid. P2P is all about transparency. Once it is transparent, where can you hide? The whole world will look for you.

The Paper: There are endless scams in China's current P2P market. What do you think about this?

Soul Htite: It's so stupid. I really don't understand how someone could cheat people out of money like this. Everyone will come after them. It's so stupid. P2P is all about transparency. Once it's transparent, where can you hide? The whole world will come after you.

In the United States, for example, the medical industry is also full of problems. For example, someone made a medicine, and someone died after taking it. This situation is very common. There are always people who are allergic to the medicine. Even if this medicine is no problem for anyone, this person will die after taking it. We have to find out the reason and tell people who should not take it by mistake. The same is true for airplanes. Most airplanes fly normally, and very few crash. We have to analyze why they crash, find out the reason, and then tell the aircraft manufacturers and airports what adjustments need to be made. This is how we treat fintech. 99% of people are honest people who want to contribute to fintech. Only a small number of people do not follow the rules. We want to make it very difficult for them to violate the rules.

In the case of Ezubao, Ezubao told investors which projects to choose, and then all the money went to the same bank account. However, if each customer had an independent account, we would know where the funds flowed, and Ezubao would not have evolved into what it is today. We need to build a special relationship between technology finance and banks. In fact, some banks will lie, but if everyone's account is independent, then the bank cannot deny it. This is my suggestion for P2P fund supervision.

This is also a common practice in the United States. In the United States, we ensure that every fund goes into the bank and each borrower has a separate account.

Renauld is my best friend, and I think he is the most talented person in the world, especially in the technology finance industry. Without him, technology finance would not be what it is today, at least in the United States. In this sense, he is the father of technology finance. But if a person remains completely correct for ten consecutive years, he will make a mistake one day.

The Paper: In the LendingClub incident, was the punishment imposed on Laplanche (LC CEO) too severe?

Soul Htite: Of course. Renauld is my best friend, and I think he is the most talented person in the world, especially in the technology finance industry. Without him, technology finance would not be what it is now, at least in the United States. In this sense, he is the father of technology finance. But a person who has been completely right for ten consecutive years will make a mistake one day. Is this a mistake? Yes. But the punishment was too severe, and he was forced to resign, which also caused LC's shareholders to lose a lot of money, which is not right.

The Paper: The board of directors should have anticipated such an outcome and proactively disclosed internal issues. Why did they do this?

Soul Htite: Arrogant and proud. There are three very special members on LC's board of directors, namely former US Treasury Secretary Larry Summers, KPCB partner Mary Meeker, and former Morgan Stanley CEO John Mack.

The Paper: An all-star lineup.

Soul Htite: Yes. So I think if JPMorgan or Citibank had these problems - in fact they did have these problems - their CEOs would not resign. Because this mistake is too small.

The Paper: It’s just a matter of date registration.

Soul Htite: Yes, it was only two weeks. This problem really shouldn't have happened, but there are ways to solve it, but it can't be solved by "shooting" six executives.

The Paper: Will Laplanche return to LendingClub like Steve Jobs returned to Apple?

Soul Htite: (Laughs) Yes.

The Paper: I heard that he has already taken some action.

Soul Htite: I can’t tell you about this.

The American model is that we spend 50 years creating laws, and then you have to find existing laws that apply to your situation. We can't change the law, it's too late.

The Paper: Changing the subject, our Chinese Internet finance regulatory framework includes the central bank, the China Banking Regulatory Commission, the China Securities Regulatory Commission, the China Insurance Regulatory Commission, and the newly established China Internet Finance Association.

Soul Htite: The last one is the most important. Because the association directly contacts us, and then feeds our opinions and views back to all other regulators. Our industry has no way to communicate directly with the regulators. The existence of this association is beneficial to both the regulators and the business model. So we also have our own lawyers in this association, and we communicate at any time on how to solve the practical problems of P2P. This is also why I like the Chinese way of doing things.

The Paper: Compared with the regulation in the United States?

Soul Htite: The American model is this: we spent 50 years creating laws, and then you have to find existing laws to apply to your situation. We can't change the law, it's too late. American society is already very mature, and Americans took the same path as China 50 years ago.

The Paper: But how could Americans 50 years ago have imagined the existence of P2P?

Soul Htite: That's exactly the problem. The legal system we thought was perfect is now hurting us. It's okay to want to change, but the process is very long. Just like Obamacare took so many years.

The Paper: Obama recently published a paper on health care reform in a medical journal.

Soul Htite: I fully support Obamacare, which provides many poor people with medical insurance. Even if Trump comes to power, he cannot change Obamacare, as it has been written into the law.

The Paper: The fate of China's P2P companies is closely linked to national policies, inclusive finance and the fight against illegal fundraising. Half is sea water and the other half is fire. Is it a good thing or a bad thing?

Soul Htite: The same is true for American companies. In fact, Chinese companies are not afraid of the government, they just act in accordance with the law. For example, in the United States, whether the Federal Reserve raises or lowers interest rates has a great impact on the entire industry, and some are happy while others are sad. But the governments of both countries are working hard to do things that are good for everyone.

The Paper: Is P2P in both countries currently at a low ebb?

Soul Htite: I don't think so. In my speech yesterday, I said that we are growing, how can it be called a low tide? We can only say that the entire financial environment is relatively sluggish. It's like someone told me that Uber and Didi Taxi are at a low ebb. What a joke! Everyone is using them. People just see the rapid growth in the past two years, and now the growth has slowed down, so they say that times are difficult. We can only say that our growth was too crazy before. Just like China's economic growth rate was 10% before, and now it is 6.9%, everyone said that it was a catastrophic data. Which country's GDP can reach 6.9%? After China and India, the fastest growing is the United States, which is only 2%, which I think is not bad. We can't say that the entire technology and financial industry is at a low ebb, we can only say that a small number of companies are at a low ebb, and most of them are still growing healthily. Good companies are good companies, bad companies are bad companies, there are no miracles.

The Paper: There are Chinese companies doing the business of lending between acquaintances. When LendingClub was first established, it also relied on Facebook to develop the same business model, but then it cut it off. Why? Does this model work?

Soul Htite: This model doesn't work. Money is a very personal thing. If my brothers and sisters ask me to borrow money, I will lend it to them, but I won't tell them: "You must pay it back on the 14th!" What will I do if they don't pay it back after agreeing to pay it back in 6 months? I will do nothing. This is not a loan, it is a help, to help my relatives and friends. But what we discuss in online loans is business, and business has rules. If you agree to pay it back on the 14th, you must pay it back. I encourage everyone to borrow money from relatives, but don't call it a loan.