P2P online lending platform, product horizontal differentiation is in progress

Through observation of current P2P online lending industry products, the Market Research Department found that P2P online lending has completed the stages from "traditional private lending products going online", "banks giving up product reconstruction" to "realizing vertical product differentiation through population classification", and is now undergoing the process of creating horizontal product differentiation through regional differences.

1. Horizontal differentiation of P2P online lending platform products

In terms of product differentiation, the P2P online lending industry, like other traditional industries, is undergoing a process of product differentiation in both horizontal and vertical directions during its development. Vertical product differentiation refers to designing corresponding product structures according to different population classifications, while horizontal product differentiation refers to the process of further refining each product according to regional characteristics based on vertical product differentiation.

Most P2P online loan platforms have completed the process of building a gradient product line structure from high to low according to the repayment ability of the borrowers in the vertical differentiation of products, so as to achieve the widest coverage of the market population. Take the four mainstream comprehensive P2P online loan platforms for personal consumption and business as an example, the loan product lines have covered the working class, students, white-collar workers, elites, self-employed people and homeowners, etc. This is just the beginning of product differentiation. In comparison, the more important process is the horizontal differentiation of products.

On the other hand, many P2P online lending platforms have begun to differentiate their products horizontally by giving each region a certain degree of product autonomy, and trying to further refine each product based on the characteristics of the region on the basis of standardized products. Taking the products of the above four companies for high-income people as an example, the income conditions of these products of several companies are different from those of first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. Moreover, in addition to products for high-income people, the bank flow requirements for products for self-employed people are also different in each city (see Table 1 for details).

Table 1: Differences in application requirements for some P2P online lending platforms in different regions (specific P2P platform names are omitted here to avoid disputes)

In other industries, after completing the vertical differentiation of products, larger enterprises will give regions a certain degree of autonomy in product management to achieve horizontal differentiation of products. Taking banks as an example, most national commercial banks have their head offices design unified product standards according to different population categories, and then delegate certain pricing authority to local branches. Each branch makes adjustments based on local conditions and reports to the head office for approval before implementation. In the non-financial industry, taking China Mobile in the communications industry as an example, after China Mobile headquarters has set the package standards for different groups of people, each provincial branch and each city branch will design packages that meet regional characteristics based on local conditions and on the basis of national packages, and report to the head office for approval and filing before implementation.

2. Horizontal product differentiation: a double-edged sword for P2P online lending platforms to divide the market

A comprehensive analysis shows that some P2P online lending platforms are following the historical path of traditional industry giants in their expansion. Horizontal product differentiation has become a crucial step for these P2P online lending platforms to carve up the market. Throughout the process, the development strategy of horizontal product differentiation will bring advantages to the above-mentioned P2P online lending platforms in two main aspects:

First, by implementing horizontal product differentiation, p2p online lending platforms can quickly expand their market share by increasing transaction volume in the region, thereby reducing the average cost of acquiring underlying assets due to economies of scale or experience curves, enabling p2p online lending platforms to quickly capture new markets in various regions, form entry barriers, and consolidate existing markets.

Second, the definition of the same group of people is different in different regions. Regional product differentiation can accurately separate this group of people in each region from other groups of people, and further refine the risk control model of this group of people according to the region, thereby deepening and penetrating the market for different groups of people, precipitating high-quality customers from different groups of people, and reducing the difficulty of risk control in the future.

However, when implementing horizontal product differentiation, each platform should also pay attention to several issues:

First, the waste of operating costs caused by excessive horizontal product differentiation. For P2P online lending platforms, it is necessary to avoid excessive product differentiation due to inaccurate information and negligence in product management by offline sales departments in various regions, thereby falling into the trap of product differentiation, increasing management costs and causing unnecessary waste. Through observation, it is found that in the current P2P online lending market, some online lending platforms have already shown similar signs. In order to reduce the default rate and improve the product application conditions, some offline sales departments have resulted in multiple application conditions for the same product in the same city, which has brought inconvenience to product operations.

Second, the moral risk of front-line sales staff. When horizontal product differentiation is implemented, the application standards in different regions are different, and there may be collusion between personnel in different regions, introducing borrowers who do not meet the requirements in regions with higher application standards to regions with lower application standards, thereby generating moral risks;

Third, the risks brought by the company's insufficient risk control capabilities and internal system support capabilities. Compared with vertical differentiation, horizontal product differentiation requires the company to have stronger strength, which mainly includes risk control capabilities and internal system support capabilities. Since horizontal differentiation is equivalent to subdividing different products for different regions on the original products, the risk control system needs to derive corresponding risk control standards for different regions based on the original model, and simultaneously update the credit review system, application system and customer management system. Without the corresponding support of risk control and system, horizontal product differentiation is just a flashy slogan, which not only has no practical effect, but also increases the cost of default.

P2P online lending platforms are currently undergoing a process of horizontal product differentiation. When this process is over, platforms that successfully avoid the above-mentioned risks will establish their market dominance, just like giants in other traditional industries. Throughout the process, how to avoid the negative effects of horizontal product differentiation will be a difficult problem that each platform needs to think about.