Two of the country’s largest P2P finance providers are Lufax (Lujiazui International Financial Asset Exchange Co. Ltd.) and Dianrong, and they have not been spared the crackdown on financial risk by Xi Jinping, the general secretary of the Chinese Communist Party. Finance bureaus operating under local government authorities then passed the work down to district bureaus, who relied on P2P firms for data and disclosure. In 2016, P2P platforms in China loaned $61.5 billion, versus a total 12.65 trillion yuan ($1.78 trillion) in loans made by commercial banks, according to central bank data. But once fraud erupted and victims took to the streets, what was then called the China Banking Regulatory Commission drafted regulation that passed oversight to local authorities. Some distraught victims even committed suicide. P2P lending platforms were first introduced to China more than 10 years ago, and flourished by filling huge demand for small loans from borrowers with limited access to formal bank lending. Reporting by Cheng Leng in BEIJING and Engen Tham in SHANGHAI; Editing by Gerry Doyle. All quotes delayed a minimum of 15 minutes. “The problem was, there was no time to do the analysis,” said a person who worked for more than a decade at the banking regulator and then at a P2P firm, who declined to be identified as she is not authorized to speak to the media. The resulting difficulties, as the industry tries to grapple with pyramid scheme scandals and runaway bosses, underline the struggles China will face as it tries to balance financial risk and innovation. “The authorities had no toolbox to supervise the firms; there was no offsite surveillance,” the person said. But it is not easy to obtain the necessary licenses. Since the regulatory crackdown began in 2016, nearly 5,000 institutions have pulled out of the sector, and the number of functioning P2P lending platforms had fallen to 139 as of March 31, down 86% from the beginning of 2019, official data show. Although P2P lenders elsewhere in the world have been viewed skeptically because of how they mix mom-and-pop investors and higher-risk loans, in China the sector was seen as helping plug a gap left by larger lenders. If you’re using the Caixin app, please click here. In 2016, P2P platforms in China loaned $61.5 billion, versus a total 12.65 trillion yuan ($1.78 trillion) in loans made by commercial banks, according to central bank data. While P2P platforms were touted as an innovative way to match savers with small borrowers, the marketplace has had troubles globally. China’s peer-to-peer (P2P) lending sector, once 6,000 businesses strong, has been reduced to fewer than three dozen as the government tightened regulations, leaving billions in loans unpaid. China’s P2P firms have dabbled in all manner of misdemeanors, including misallocating funds and mass criminal enterprises such as Ezubao - a 50 billion yuan fraud - where convictions ranged from illegal possession of weapons to undocumented border crossings. The CBIRC and PBOC didn’t respond to requests for comment. No former P2P platform has yet received a microlending license except for those who already held such a license themselves or through their related companies, sources with the knowledge of the matter said. The volume of outstanding loans had fallen 75% from the beginning of 2019 and the number of lenders decreased by 80%, according to a recent meeting of China’s online lending regulation leading group, an inter-ministerial team headed by the central bank. The People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC) – already struggling to oversee an expanding finance industry – passed the responsibility to provincial governments in 2015, those sources said. In the U.S., P2P platforms loaned $1.5 billion in 2016, while UK firms loaned $1.8 billion. Japanese P2P lenders had $1.2 billion of outstanding loans in 2017, according to the report. Copyright © 2019 Caixin Global Limited. A platform head told Caixin that they were “constantly asked to submit supplementary application materials,” and that certain requirements must be met in terms of investment capital, shareholder qualifications and more. The group said the Covid-19 pandemic had brought challenges to rectification of the industry, as it has made it more difficult for the remaining P2P lending platforms to pull out of the sector and move into new areas of business, and made it more difficult to defuse risks in platforms which have already shut down. The Hebei finance bureau did not respond to requests for comment. The actual operation of P2P online lending institutions across the country has dropped from about 5,000 during the peak period to three at present. China’s P2P lending sector had managed to attract nearly 50 million investors at its peak. The ratio of new P2P loans to new bank loans rose to almost 40% in June 2016, before falling to less than 10% in June 2018 (Graph B, left-hand panel). Peer-to-peer lending, also abbreviated as P2P lending, ... Lender's return rate across all P2P lending platform in China is about 10% per annum on average, with a few of them offering more than 24% return rate. CROSS-BORDER MERCHANT FRICTION INDEX – NOVEMBER 2020, Uber Eats Anticipates Continued Demand After Pandemic, Cloud Cybersecurity Platform SentinelOne Nets $267M; Now Valued At Over $3B, Walmart's Flipkart Adds Alcohol Delivery In Two Indian States. In Depth: Is China’s Once-Booming P2P Sector Facing a Dead End? Not even cryptocurrency, which Beijing all but outlawed, has been crippled like P2P lending. China’s three-year clampdown on the peer-to-peer (P2P) lending industry chopped the number of platforms down to just three from about 6,000 at the peak, according to the nation’s top banking regulator. The once-booming P2P lending industry in China has met a dead end since regulators tightened oversight in response to investors losing billions of yuan due to fraud, lax management and poor risk control by some platforms. Regulators have stamped out the vast majority of China’s scandal-ridden peer-to-peer (P2P) lending industry over the last few years, but are facing challenges cleaning up the remainder amid the Covid-19 pandemic. It provides feedback on their plans and runs a sandbox for testing new models, said the paper. But the lack of effective oversight and high returns promised to lenders by some platforms stoked a lending boom that attracted speculators and borrowers with poor credit records that could not pay back their loans. The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on global eCommerce sites. According to an analysis by the Asian Development Bank Institute (ADBI), the UK regulatory framework has been the most successful at encouraging the industry. The once-booming P2P lending industry in China has met a dead end since regulators tightened oversight in response to investors losing billions of yuan due to fraud, lax management and poor risk control by some platforms. NEW PYMNTS STUDY: CROSS-BORDER MERCHANT FRICTION INDEX – NOVEMBER 2020. Lufax, once an industry leader and the best-known name internationally, plans to quit the business entirely after struggling to meet regulators’ requirements. The U.S., UK and Japan all have active P2P companies. But the news service reported the sector was plagued by fraud and defaults. In other countries, P2P has thrived as an alternative to bank lending. Earlier this year, PYMNTS reported China’s P2P lending market was headed for more turbulence in 2020 as more of its popular platforms face potentially being shut down as the government tightens regulations. In principle, the platforms are not themselves lenders and serve only as intermediaries that match lenders to borrowers. Read more The ex-regulator said some districts were completely unstaffed. Lending platforms known as peer-to-peer lending, or P2P, began taking off in China last year and have attracted much investment as well as controversy. “An industry that should have been regulated more was not, and now we’re seeing that implode with even the stronger players like Lufax pulling out of the industry,” said Zennon Kapron, director at financial technology consultancy Kapronasia. Now, Guo Shuqing, chairman of the China Banking Regulatory Commission, the nation’s top banking regulator, said investors have been saddled with more than 800 billion yuan ($115 billion) in debt from the failed platforms, Bloomberg News reported. BEIJING/SHANGHAI (Reuters) - Overburdened Chinese regulators have left the peer-to-peer lending industry to poorly staffed local governments, according to ex-regulators, threatening the survival of an important credit mechanism once seen as crucial for the country’s economy. In the initial years of the P2P surge, regulators in China took a hands-off approach. Without the expertise or numbers to confidently set standards, provincial regulators essentially froze, they said. On November 6, Liu Fushou, chief lawyer of the China Banking and Insurance Regulatory Commission, stated at the State Council's regular policy briefing that the Internet financial risk situation has basically improved. Caixin Global has launched Caixin CEIC Mobile, the mobile-only version of its world-class macroeconomic data platform. But the number of P2P firms in China has shrunk from 6,000 at their 2015 peak to 708 at the end of August, according to P2P-tracking portal Waidaizhijia, as regulators have struggled to implement new rules. No China fintech segment has fallen faster and harder than peer-to-peer lending. A colloquial term for P2P lending in Chinese translates as "grey market", but is not to be confused with grey markets for goods or an underground economy. The country’s P2P industry, a small portion of overall lending, was a credit source for businesses and consumers who couldn’t obtain loans through China’s traditional banks. Caixin China Biz Roundup: Huawei’s Fight Against Sweden 5G Ban Heats Up, Gallery: Coronavirus Cases Prompt Testing in Tianjin Cold Storage Sites, Trending in China: Blackpink and Angry – Social Media Criticize K-Pop Band Touching Baby Panda, Xi Jinping Says Imports Will Grow Over the Next Decade, Gallery: China Will Have You Know That It Buys Stuff, Too, Local Governments Near Completion of Annual Special Bond Borrowing. “This is why it all went wrong.”. The number of people borrowing money from P2P … The reason is simple: The scam-ridden P2P lending segment robbed hundreds of thousands of retail investors of their life savings. In recent years, regulators have encouraged P2P platforms to either leave the industry or remodel themselves into licensed microlending companies or consumer financing firms which make their own loans rather than acting as intermediaries.