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Case Discussion: “Dianrong:Marketplace Lending, Blockchain,and The New Finance in China”(based on the case study by Malloy, C. J., Cohen, L. H., and Woo, A. K.)FINA4410 Current Developments in FinTechCUHK Business SchoolWeek 3
Learning ObjectivesUnderstand the general banking industry, and the FinTech sector especially P2P inan emerging market like China.Develop a basic understanding of the various FinTech capabilities of Dianrong,including customer identification, data collection, credit analysis, fraud detectionand management, and supply chain finance.Analyze Dianrong’s competitive position within the FinTech sector.Ascertain the opportunities and priorities for Dianrong, and the strategic factorsthe company should focus on.Develop a strategy for Dianrong to leverage on its “technology DNA” to capitalizeon future opportunities.© 2022 Alvin Ang1
Problems with Traditional Banking in ChinaChina’s banks has grown at double-digit rates albeit slowing to high single-digitsin recent years. The banking system handles savings deposits of over US$ 7trillion.Most Chinese banks are state-owned and capital flowed mostly to largeenterprises. This crowds out funding for SMEs and became a severe constraint forthem to grow.Bank loan applications are often tedious, complex, and time-consuming. Thisdeters SMEs from seeking loans.China also lacks a functional system-wide credit profiling mechanism, whichmakes credit analysis and allocation more difficult.© 2022 Alvin Ang2
P2P LendingP2P lending is a technology-enabled system that matches lenders to borrowerswithout going through financial institutions.P2P lending started developing in China in 2011. By 2016, P2P transactionvolume surpassed US$ 406 billion.P2P lending offered a solution to credit-starved SMEs while offering higher ratesof return to lenders.The explosive growth in P2P lending reached a point where anyone can simplypurchase a P2P software from Taobao for only US$ 5.80 and start a P2P lendingbusiness without regulatory approval!© 2022 Alvin Ang3
Unregulated P2P Industry in ChinaHyper-growth meant that competition became extremely intense, which pressuredP2P firms to take on riskier projects.Without a regulatory framework, some P2P operators were essentially operatingPonzi schemes. Ezubao, a P2P platform, allegedly scammed over 900,000investors of US$ 7.2 billion!This motivated the China Banking Regulatory Commission to develop aregulatory framework for P2P lenders.P2P platforms are barred from guaranteeing principal and interest on loans, and selling wealthmanagement products or asset-backed securities.Regulators aimed to turn P2P lending into a mere supplement of the bankingindustry rather than allow it to become an industry in itself.

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Debt, Alvin Ang

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