Blockchain breaks the risk of bill financial management

Editor’s Note:

1. At the end of December 2014, Zhonghui Online, a bill management platform located in Shenzhen, suddenly became unable to repay.

2. On January 22, 2016, the Agricultural Bank of China issued an announcement stating that a major risk event occurred in the bill purchase and resale business of its Beijing branch. After verification, the amount of risk involved was 3.915 billion yuan.

3. On January 28, 2016, the Lanzhou Branch of CITIC Bank revealed a bill fraud incident involving 900 million to 1 billion yuan last year.

The author looked through the data report of Zero One Finance: According to the statistics released on October 15, 2015, among the 1,990 P2P lending platforms that were operating normally at that time, about 80 were involved in bill business, still mainly bank acceptance bills, with a cumulative scale of 18-20 billion yuan. From the category point of view, there are three main types of platforms involved in bill financial management business: the first type is the Internet platform represented by Ali Zhaocaibao; the second type is the bank platform, such as Lufax (Anying-Bills); the third type is the professional bill financial management platform, such as Jinyinmao.

First of all, I will give you some knowledge about what bill financial management is.

The bills of bills financial management are acceptance bills, or bills for short. They are generally divided into silver bills and commercial bills. Bills are certificates of credit. Before the emergence of Internet financial management, bills have always been a trading variety between financial institutions, and individual investors have little chance to play with them. Since the first year of Internet finance in 2013, many Internet platforms focusing on bills financial management have been born.

The biggest risk of investing in bill-based financial products is that the commercial bill cannot be recovered when it matures. There are three main reasons for this risk: first, the acceptor believes that the discounted bill has defects and refuses to pay; second, the discounted bill is forged or altered, and the acceptor refuses to pay; third, the acceptor goes bankrupt and is unable to pay.

For the first two reasons, banks will have professionals to review bills when they receive them, so the risk caused by this is almost zero. As for the risk caused by the third reason, investors need to bear the risk of default by the acceptor. However, the term of commercial bills is generally within 6 months, and the acceptor is unlikely to default in a short period of time. If the acceptor is a bank, the probability of default is even lower.

So, to put it simply, the risk factor of bill investment has only two extremes: either extremely low or extremely high. To put it more simply, if you don't encounter fraud, you will make a profit, but if you do, you will be blind. According to the quotation data of the interbank market, the normal return on bills is not high, generally only about 3.7%, but the platform can achieve an annualized expected return of 7%. Some platforms even provide profit subsidies to investors, such as the earlier cooperation between Sina Micro Wealth and Jinyinmao, where Sina Micro Wealth advertised an annualized return of 8% on the platform.

There is a consensus among industry insiders that bills are the Internet financial products with the highest safety factor. Bills are particularly favored by JD Finance and Alibaba's Zhaocaibao. With the dual endorsement of large platforms and safety factors, bills once became the most popular investment and financial product among investors.

However, bill financial management is not so perfect!

First, bill identification. The bill market is very professional and complex, and it is difficult for non-professionals to verify the authenticity of bills. In this year's chaotic bill market, even the four major banks with strict monitoring have reported multiple bill risk events, including fake bills, multiple sales of one bill, and commercial bill risks. For ordinary investors, identification is even more difficult.

Second, the information on the bill guarantee is not transparent. Even if the bill is fully uploaded to the Internet, the true information of the creditor and debtor of the bill cannot be seen from the face of the bill, and the qualification review of the guarantor and the transaction structure cannot be seen, making it impossible to analyze the risk of the bill. The platform team is not professional enough, the information is incomplete, or the expression is vague, making it even more difficult for investors to identify.

Third, high-quality bill products will not flow into the market. For those who are familiar with the bill market, high-quality bank acceptance bills will not circulate in the market at all, and are in short supply. Commercial acceptance bills with bank guarantees are also hot-selling products, but they are also difficult to flow into the market. From this dialectical perspective, it is not difficult to judge whether there are some problems with so many bill products on the market.

Fourth, high returns are inherently high risks. Generally speaking, the average interest rate for interbank bill sales is below 3.7%, but the expected rate of return marked by some Internet platforms is as high as 10% or more. Most bank acceptance bill products cannot achieve the promised high interest rates, and they mainly rely on the platform's own subsidies, so there is a high risk of the platform going bankrupt and failing to pay. Individual investors must pay attention.

So, is there any way to break the deadlock? The answer lies in blockchain!

Blockchain is essentially a public ledger that can register, track, verify, be transparent, and be irreversible for all assets.

The construction of blockchain bills is a new financial project.

The primary task of this project is to build a "digital bill pool" formed by digital bills. According to the requirements, the issuer and circulator of the bill must register and back up the bills in their hands on a specific code block according to the rules of the smart contract. There is a consensus mechanism called: code is law. Any participating entity must abide by such rules. All members who provide bills, whether issuers or underwriters, must maintain and abide by the smart contract of the bill. On the smart contract, all bills are numbered, authentic and transparent. For example, you can query the product's transaction structure, yield, liquidity management, auditor information, guarantor and guarantee letter content, the bill's remaining redemption period (less than or equal to 6 months), accessible paths and guidance, etc.

According to the smart contract, a consensus mechanism of "one ticket, one number" was reached. The phenomenon of bill fraud and multiple sales of one ticket was completely eliminated. At the same time, the bill redemption time and subject can be tracked to ensure the interests of all parties. As a decentralized tool of the consensus mechanism, the block provides the parties of bill transactions with new governance rules of real and transparent decentralized investment and financial management. There is no human operation, which eliminates the black box operation and collusion of various interest groups, and avoids the moral risks of fraud and arbitrage. The solution introduced here is only the blockchain bill solution. If you want to know more detailed products and solutions, you can consult the blockchain and digital asset laboratory of Gaoronghui Capital.

In the financial engineering of blockchain bills, bill trading behavior is defined as digital behavior, bill assets are defined as digital assets through code, and real bills are placed in a secure bill database.

Blockchain bills still recognize that the essence of finance is risk control. Without risk control, there is no finance. Bills carry the circulation of credit, and blockchain bills transform bill credit into digital credit. In the entire process of financial engineering construction, the financial attributes of bills are not subverted, but another digital new transaction ecological world is reshaped. This ecology can be described in one sentence: digital credit is used through digital behavior to achieve a perfect combination of digital asset security, return expectations and liquidity management.

The world could be a better place, but the key is, are we willing to embrace the disruption of blockchain technology?

Author: Chen Gang, Financial Uncle. Founder and Managing Director of Gaoronghui Capital. Senior financial media person, observer of GRH Blockchain and Digital Asset Laboratory. Producer of "Venture Capital Era". Consultant of many startups.