In the field of consumer finance, interest rates are not only the focus of borrowers, but also a key indicator for lenders to achieve profitability.
Since the end of last year, there have been reports that regulatory requirements require licensed consumer finance institutions to adjust annual interest rates. Some borrowers have sensed a good opportunity to reduce their liabilities, but for consumer finance institutions, , but this means painful "cutting off".
As various costs such as customer acquisition and collections rise, once the new interest rate “red line” is implemented, the profit model of the consumer finance industry will change. So, under the new game rules, how can players stand out?
The interest rate algorithm is tricky
As borrowers become more and more sensitive to borrowing interest rates, the interest rate calculation caliber begins to be taken seriously.
Recently, Jufei, a third-party complaint platform, released the 2019 annual reports for various industries. In Internet finance-related industries, Jufei disclosed a large amount of data and information, among which the algorithm for borrowing interest rates also became the report 's "Annual Observation".
At present, the interest rate calculation method adopted by most borrowing platforms in the mutual finance industry is the APR nominal interest rate algorithm of interest/principal. For installment repayment, the principal decreases with the monthly repayment amount. In fact, the IRR is used to calculate the interest rate, which can more truly reflect the cost of borrowing.
Take a certain cash loan platform as an example. It advertises that the overall borrowing cost does not exceed 36% of the borrowed amount, but when recalculated using the IRR method, the interest rate is 84%.
In November 2018, Jucomplaint Platform launched the "21CN Jucomplaint Platform Internet Consumer Financial Complaint Handling Rules (Version 3.0)", a settlement plan for effective complaints in the Internet consumer finance industry. Among them, it is advocated that mutual financial merchants adopt IRR is a method of calculating interest rates and proactively offers repayment options to resolve complaints.
The report mentioned that Ju Complaint’s settlement plan has been recognized by many mutual financial merchants. Over the past year, more than 13,700 complaints have been processed and closed based on this plan. During the handling of complaints, many leading online lending platforms voluntarily adopted the IRR algorithm recommended by Ju Complaints to calculate interest rates.
Compared with the plans formulated by Ju Complaints, the signals released by official agencies deserve our attention.
In March 2018, the National Internet Financial Security Technology Expert Committee publicly stated that the IRR calculation method is more scientific and appropriate; on December 26, 2019, the People’s Bank of China’s WeChat public account issued an article stating that common in the market Installment interest rates that do not use the IRR formula as a basis are interest rate "traps."
Source of analysis of common interest rate "traps": WeChat official account of the People's Bank of China
On October 21, 2019, the "Two Highs and Two Ministries" (Supreme People's Court, Supreme People's Procuratorate, The Ministry of Public Security and the Ministry of Justice)'s "Opinions on Several Issues Concerning the Handling of Criminal Cases of Illegal Lending" was officially implemented, clarifying that "usury shall be criminalized." Since then, some platforms have adjusted the annual interest rate of their products to less than 36% based on the IRR interest rate calculation method.
Although there are no clear regulations on which interest rate calculation method should be used for loans in the consumer finance industry, judging from the existing information, it is a general trend to use IRR as the calculation caliber.
It is worth mentioning that while supervision strictly regulates the borrowing rates of lending institutions, it has also recently drawn a new interest rate "red line", which will promote changes in the consumer finance industry. Shuffle with Acceleration.
The “red line” of 24% interest rate
At the end of last year, news broke that some licensed consumer financial institutions, including Industrial Consumer Finance, Jinmeixin Consumer Finance, etc., had received The supervisory verbal notice clearly requires that starting from January 1, 2020, the interest rate of loan products will be adjusted to an annualized IRR of less than 24%. In addition, the annualized interest rate plus penalty interest must be controlled within 30%.
As soon as the news came out, senior executives of many consumer finance companies began to demand interest rate adjustments. In addition, according to incomplete statistics, there are currently a number of Internet giants and financial technology companies that actively or passively adjust loan interest rates below 24%, including Ant Financial, Baidu, Tencent, JD.com, Meituan, Xinye Technology, Jianpu Technology, Shuhe Technology, Orange Financing, etc.
Some borrowers told the Consumer Finance Association that the interest rate reduction and interest reduction are undoubtedly a benefit.
Another borrower said that he had borrowed money from multiple platforms and could borrow some low-interest loans to clear out his previous high-interest online loans and reduce his debt. It was a good opportunity to go online.
According to the "Regulations of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases": If the interest rate agreed between the borrower and the borrower does not exceed the annual interest rate of 24%, and the lender requests the borrower to pay interest according to the agreed interest rate, The People's Court should support it. If the interest rate agreed upon by both parties exceeds the annual interest rate by 36%, the excess interest agreement is invalid. If the borrower requests the lender to return the interest that has been paid in excess of 36% of the annual interest rate, the People's Court shall support the request.
Consumer Finance Society has combed through the judgment information on the China Judgment Document Network and found that in multiple judgments involving consumer finance, loans, interest rates, and interest, it is shown that the court will not support the portion of the loan interest rate that exceeds 24%.
According to statistics from Lingyi Think Tank, the low annual interest rate of consumer finance companies’ credit products ranges from 10% to 15%, and the high annual interest rate ranges from 18% to 36%. It is reported that many consumer finance companies currently have credit products The annual interest rate hit the regulatory “red line” of 24%.
Industry insiders told the Consumer Finance Agency that the new interest rate "red line" has been finalized, which means that it is difficult for consumer finance companies to continue to use high interest rates to cover high-risk business expansion models. For most industry players, risk costs remain unchanged, operating costs are rising, and capital costs are high. If the loan interest rate is reduced from 36% to 24% annually, the original business model will suffer a major impact.
Because most of the current services provided by licensed consumer finance companies are long-tail customers that are difficult to reach by banks and other financial institutions, this customer group has a higher risk of default. Therefore, consumer finance companies need to cover bad debt risks through interest rates that are appropriately higher than banks.
“Once the annualized interest rate of products drops to less than 24%, in order to keep risks controllable, consumer finance companies will shift their focus to more high-quality customer groups. In other words, they can only abandon those with lower incomes. , higher-risk customer groups, and even compete with commercial banks for credit card users,” said the industry insider.
A marketing department employee of a licensed consumer finance institution revealed to Consumer Finance Society that their company’s budget for 2020 is almost half less than the previous year. "Different loan interest rates correspond to consumers with different incomes, different risk preferences and even different repayment abilities. If the customer groups are different, then the marketing strategy will naturally change accordingly, so it takes time to test and polish. And here In the past, investment was naturally more conservative. "
On the other hand, for licensed financial institutions, the 24% interest rate regulation also means that the days of relying on loan assistance institutions and simply exporting funds are over. .
It is understood that many of the licensed consumer finance companies that currently focus on online business adopt the loan assistance model. They cooperate with Internet giants to provide loans. For example, Hubei Consumer Finance provides loans through Jiufu Wanka, and Shengyin Consumer Finance cooperates with platforms such as Fenqile and Jike Finance to provide loans.
The self-media consumer finance industry has calculated that the annualized capital cost of the loan assistance platform (including the annualized margin conversion) is about 13.5%-14% on average, the risk of bad debt costs is about 5%, and the operating cost is 4.2%. Based on the above data, the total cost of the loan assistance platform is basically around 23%.
"Based on the annualized interest rate of 36%, there is still about double-digit profit margin. For example, according to the 24% interest rate set by supervision, most institutions face almost the same cost. It’s very difficult to operate normally, let alone make a profit,” said a staff member of a financial technology platform.
According to media reports, many mutual financial platforms have recently stopped loan assistance cooperation with licensed institutions, including some platforms that have long been recognized for their asset quality and business scale.
How to break the situation?
From 2018 to 2019, regulatory authorities carried out comprehensive and multi-level structural rectification of non-compliant businesses of non-licensed financial institutions, from collections, data companies, third-party payments to borrowing apps, The industry ushered in a new starting point for compliance operations.
Some people in the industry said: "Consumer finance is ushering in strong supervision. The industry is supporting the good and limiting the bad, cleaning up and shuffling. Those irregular and non-licensed institutions will be lucky to survive this year."
p>Against this background, risk costs and post-loan management costs continue to rise. In addition, regulations have begun to limit the annual interest rate of credit products to no more than 24%. The profit margins and market space of various market entities will subsequently narrow. .
In addition, as Internet giants such as Baidu and Alibaba have invested in consumer finance companies and Xiaomi and Ping An have successively been approved to establish consumer finance companies, market competition is also intensifying.
Under the new situation, the consumer finance industry has entered the second half of accelerated reshuffle and will transform from "extensive" development to "refined" development.
How to break the situation?
In the opinion of industry experts, compared with the relatively high-quality customer groups that banks mainly serve, which bear interest within 18%, the target customers of consumer finance companies are mainly customers who bear interest above 18%.
Nowadays, banks are making efforts to sink their retail businesses. Driven by new interest rate regulations, the consumer finance customer base is moving upwards, and some businesses of both parties are bound to face direct competition. If they go head-to-head, consumer finance institutions will be at a disadvantage in terms of offline outlet coverage, capital costs, license influence, etc. Therefore, identifying the target customer groups and continuously improving services and efficiency are the directions for breakthroughs.
At present, the population of my country’s third-tier and lower cities, counties, towns and rural areas is nearly 1 billion. Among this customer group, many customers lack credit information and risk management and control is difficult. However, this market is currently a place where the banking service network coverage is relatively limited. Therefore, it is of great significance for consumer finance companies to provide convenient services to high-quality customers in this customer group, establish compliant and effective risk control models, and identify fraud risks and personal credit risks. The development of financial technology provides conditions for solving this problem.
Specifically, when financial technology is combined with various business scenarios, the most direct effect is low cost, improved efficiency and optimized user experience. Currently, cutting-edge financial technology represented by artificial intelligence, big data, blockchain and cloud computing is developing rapidly, and financial institutions, especially consumer finance companies, are paying increasing attention to financial technology.
According to Lingyi Think Tank's "Technology Empowerment: Consumer Finance Industry Development Report 2019", my country's consumer finance business technology investment in 2018 was 15.75 billion yuan, and it is expected to reach 38.73 billion yuan by 2022.
As of the end of November 2019, among the 24 consumer finance companies in my country, the patents applied by 8 companies have been publicized by the State Intellectual Property Office. The total number of publicized patents has reached 139, including 54 in consumer finance. , accounting for 39% of the total, Suning and China Merchants Union Consumer Finance have 36 and 30 respectively.
Source of the number of patent applications announced by consumer finance companies: Lingyi Think Tank, WIPO Statistical Database
It is understood that there are currently 7 consumer finance companies that have developed their own smart credit through independent research and development. system. These systems mainly involve artificial intelligence and big data technologies. Application scenarios cover smart payment, credit scoring, smart collection, smart customer service, risk management, anti-fraud identification, etc.
Therefore, some people in the industry pointed out that while licensed institutions continue to improve their financial technology levels, on the one hand, they can maintain the existing users of the platform and develop new products with compliant interest rates, thereby revitalizing existing users and improving Refinancing rate.
On the other hand, you can start from the B-side and use your service advantages in deep scene scenarios and complete lending service process capabilities such as funds, data, and risk control to banks, Internet companies, third-party payment institutions, etc. Export financial technology solutions. According to incomplete statistics from the self-media consumer finance channel, many institutions such as Home Credit Consumer Finance, Immediate Consumer Finance, China Merchants Union Consumer Finance, and Haier Consumer Finance have exported financial technology business to the outside world.
In addition, in view of the impact on the loan assistance cooperation model in 2020, it is also an unavoidable step for licensed consumer finance institutions to deploy their own business and cultivate their own refined operation capabilities.
For example, by actively participating in the capital market, expanding asset securitization ABS, financial bonds and other channels to reduce financing costs; by meeting the credit needs of different users and taking advantage of its own consumption scenarios to strengthen product differentiation and expand diversification revenue, etc., and improve the overall operational level of consumer finance companies in various ways.
Up to now, news of interest rate adjustments has been limited to verbal notices from some consumer finance companies. In accordance with the overall spirit of interest rate liberalization, it is expected that the formal regulation of 24% annual rate will most likely be implemented in various national ministries and commissions first. A tacit understanding is formed between them, and this process takes some time. In addition, while the current COVID-19 epidemic prevention and control has brought challenges to the development of the consumer finance industry, it has actually also increased buffer space for the implementation of new policies to a certain extent.
No matter what, what should come will eventually come. Under the policy dividends that are gradually going away, the "high interest era" of consumer finance has come to an end. Consumer finance players need to recognize the reality and continuously strengthen their core competitiveness. Only in this way can they have the opportunity to stand out in the new industry game rules.