Beyond the fundamentals, let’s take a look at the pain points of risk control

I have previously written about several major risk control innovations in the Internet finance industry, briefly talking about common risk control methods and the more popular risk control models in the industry. In recent days, I have had the honor of meeting a group of risk control practitioners with more than 10 years of experience in the industry. I have benefited a lot from communicating with them. Today, I will briefly summarize and talk about my own views.

Risk control is something that everyone talks about every day and every month, but in the end, neither you nor I understand it. Generally speaking, risk control is the processing method before, during and after the loan. In the Internet-oriented way, risk control is big data. In the Internet-oriented way, risk control is a perfect closed loop. In the human-oriented way, risk control is an extremely high default cost.

Existence is reasonable, and we can find real cases to support every statement. However, let us put aside these metaphysical statements and return to the starting point to see what kind of logic is hidden behind risk control.

Here the author will discuss it from two aspects, namely credit risk control and collateral risk control.

In the conversation with relevant people, their unanimous view is that credit loans are a product with very high default and bad debt rates. Especially in this year when the real economy is in a serious downturn, many industries are avoiding the real economy, people are speculating a lot, and the national credit system is imperfect, there is no credit at all. Therefore, if you enter the market from this point without credit, it is tantamount to burying an invisible bomb for yourself.

I cannot oppose such views because they are speaking from the perspective of facts, but my attitude towards this view is that perhaps this is too absolute.

Let’s first go back to the basics and look at why credit loan bad debts and overdue payments occur.

Imagine the following, taking a normal natural person or organization as an example. Here we must distinguish between scammers and scammers, which is a basic course for many risk control personnel, so I won’t go into details here.

First of all, borrowers must have a demand to borrow money, but many borrowers have little idea of ​​how much money they actually need and how much interest they can bear. For example, if the actual need is 5,000 yuan, he may have two estimates in his mind, one estimate is less than 5,000, and the other estimate is more than 5,000. Giving him money less than 5,000 will not only fail to revitalize him, but will increase his burden in disguise. If it is more than 5,000, it can revitalize himself under ideal conditions, but the excess funds are tantamount to increasing his capital cost, and the deviation from the estimate of the interest he can bear will essentially reduce his net profit. Therefore, it can be seen from this point that the vast majority of borrowers do not have a clear bottom line for their borrowing needs, and almost all of them rely on their own imagination and estimation.

Then let's look at the lending institutions. As a lending institution, its essence is to go for profit, so high interest must be the first method of lending institutions. In addition, as private finance, high interest covers high risk is the iron law of the market. If it does not do so, it will inevitably be unable to cover up its bad debts and overdue payments. The problem reflected is that lending institutions will not conduct relevant due diligence based on the actual affordability of borrowers. You only need to bring your ID card and they will lend money immediately. The author believes that many people can see such advertisements everywhere on rickshaws and three-wheeled motorcycles, and they only need an ID card to lend money on the same day for 30,000 to 50,000 yuan.

Therefore, the following problems arise at the institution: 1. The institution does not conduct sufficient due diligence on the recipient of the funds. 2. The interest rate is too high, or even far exceeds the borrower's tolerance. 3. The borrower's capital demand and the actual time of demand are not accurately calculated.

As a result, information asymmetry occurs between borrowers and institutions. Institutions overestimate borrowers and their own debt collection capabilities, while borrowers blur their own cost-bearing capabilities and increase their own costs. The final vicious cycle is that borrowers have no money to repay, and the money lent by lending institutions becomes bad debts.

So the question is, for today's Internet finance industry, the vast majority are moving from offline to online, and how to measure and handle this relationship has become a headache for many platforms today.

The author personally believes that the difficulty in solving this problem lies in how to deal with the problem of demand points and profit points. Borrowers need relatively clear capital needs, while institutions need certain profits to support institutional operations, so the entry point comes.

First, the platform must determine the peak and low periods of the borrower's capital demand based on the borrower's capital flow, and then estimate the relatively accurate amount of funds based on the capital flow. Furthermore, the amount of funds must not be in place all at once, because people who have done business know that your demand for funds should be in stages. If you are suddenly given a large amount of funds, it will undoubtedly increase your capital cost financially. Finally, you must negotiate with the borrower to set the loan interest under the conditions of satisfying the institution's self-operation and reasonable profits.

The above treatment methods may be too idealistic, but we have to deny that some platforms do this. (We can discuss which one in private.) As for credit loans, I think that institutions that do not set reasonable settings from the perspective of borrowers are mindless and rogue. The reason why mutual finance is in chaos is inseparable from these rogue behaviors. Only by doing this can the value of this industry be realized and inclusive finance in a certain sense be achieved.

Next, I will talk about non-credit risk control. First of all, in essence, this type of debt is relatively better than credit loans. Why? The reason is actually very simple, higher default costs.

But even with such a high default cost, why does it still lead to such a serious bad debt rate? What is the reason? The author briefly analyzes it:

1. The stock market was booming in the first half of this year. I believe that many people mortgaged their houses and cars to enter the stock market.

2. This year, the real economy is in a downturn, and the real estate market is in a slump. Real estate prices in many places have fallen sharply, so many people who own multiple houses have no channels to sell them, so they mortgage them to institutions or platforms at low prices, and some even mortgage them more than they actually want. In essence, they want institutions like you to sell me houses, and I just want money. At the same time, this is also reflected in business, such as goods mortgage, product mortgage, etc.

Therefore, under this premise, some platforms that provide real estate, cars and other physical mortgages have collapsed, and many investors have become landlords and car owners in disguised form under inexplicable circumstances. Therefore, returning to the key point, when we evaluate such platforms, we must understand that we are not evaluating the quality of its assets, but its ability to realize cash and cash flow. Therefore, the core point of risk control for this kind of debt is the ability to realize cash and guarantee cash flow, and other collection is basically nonsense. Especially for new and small platforms, asset realization one day faster and one day slower are basically two concepts. Perhaps a platform will go bankrupt just because of one day.

The above is purely based on the author’s personal thinking. Any similarity is completely impossible. The author’s views have always been very direct. When looking at a problem, please go straight to the pain points on the premise of identifying the basic points. Only by finding the pain points can you know what is good and what is bad, and hold on to the money in your hands!