Chinese online financing platform PPDai is reportedly the last peer-to-peer partner of Alipay – an online payment platform in China. Before 2013, Alipay was servicing a wide array of online alternative lenders. From 2013 onwards, the company began to reduce its exposure to the marketplace lending space and PPDai is the only survivor of the culling. However, we learn that the payment firm is considering a divorce even from PPDai, completely ceasing all collaborations with local peer-to-peer lenders.
Alipay is run by Ant Financial Services Group, an affiliate of the e-commerce giant Alibaba Group Holdings Ltd. The company provides its 400 million users with secure online payment services. The privacy of each account is ensured by an advanced encryption technology, so that users’ information is never passed on to any other parties. Alipay claims to have a robust risk management framework to protect accounts and transactions, and to prevent money laundering activities, credit card fraud and cash-advance scams.
Alipay’s decision to step back from the Chinese online marketplace lending will likely be due to the scandals that have surfaced since the beginning of this year. The most talked about of these over the last couple of months is surely the Ezubao blow up. Ezubao was one of the largest peer-to-peer lending platforms in China – and one that fleeced investors for a grand total of Rmb50 billion ($7.6bn). 20 people have been arrested in connection to what appears to have been a sizeable Ponzi scheme, last February.
Mr Zheng Liang, senior manager at Ant Financial's domestic risk management department, declared to CNB Global:
“It's hard to tell (if we will resume cooperation with P2P sites) in the future. We have been cautious about it to date.”
Ezubao’s fraud could be just the tip of the iceberg, as the Chinese online marketplace lending may produce further unpleasant surprises in the future. Soon after the Ezubao’s scandal, local policymakers launched a website that allows investors to report to the authorities the name of dodgy peer-to-peer platforms. The website was allegedly being designed to aid authorities in detecting fraudulent platforms and allows investors to claim compensation for their losses.
Another tool designed to stem potential wrongdoings consists in a series of rules proposed by The China Banking Regulatory Commission (CBRC). These rules include the banning of guarantees to clients – a move which mimics the FCA’s approach to financial promotions in the UK's space. The regulators also require that peer-to-peer platforms operate only as intermediaries, linking investors and borrowers. This point probably serves to check the progress of any hybrid platforms – those that both act as a marketplace, while also lending to consumers and/or businesses off balance sheet.
The decision to cut ties with all of its peer-to-peer lending partners might be fed by Alipay’s plans to go public. According to Bloomberg, the payment company is reportedly planning an initial public offering on Shanghai’s main board in what could be China’s largest IPO valuation since 2010.
We may soon see other high profile backers of China’s P2P space following suit. Such moves might hurt the growth and limit the success of the Chinese marketplace lending industry, the world’s largest by transaction volume, according to a recent report by Cambridge University.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.