A NEW DIGITAL FINANCIAL INTERMEDIATION - PEER-TO -
PEER LENDING PLATFORM –
MA. Pham Khanh Duy
University of Economics
Ho Chi Minh City
ABSTRACT
Peer-to-peer lending, new kind of financial intermediation, has become quite popular
and attracted significant attention of academic researchers. This new digital intermediation
offer huge benefits as well as many challenges. This paper is to review on Peer-to-peer
lending platform around the world and also in Vietnam, in order to have a general idea on
how this kind of business works, what are benefit and limitation?
Keywords: Fintech; Peer-to-peer lending; digital financial intermediation; Vietnam.
1. WHAT ARE FINTECH AND P2P LENDING?
Fintech stands for "financial technology", which means applying innovative
technology in financial services. Fintech is used for all internet companies, cloud
computing technology, cellular phone, open source software or cryptocurrency as Bitcoin,
it aims to improve the efficiency of banking operations and investment.
Fintech products are usually divided into two groups:
o Group 1: Companies serving consumers, provides digital tools to enhance the way
individuals borrow, funding for start-up businesses, money management.
o Group 2: These are "bank-office" company that provides technology support to
financial institutions.
Fintech is supported by financial regulators around the world because it promises to
make financial transactions simpler, more transparent and especially cost-effective.
Fintech is able to re-shape the financial sector and has a strong impact on the most
important factors in the financial sector.
Peer-to-peer (P2P) lending is a product of Fintech (financial technology) in capital
market. P2P Lending belongs to Fintech Group 1. Currently, the P2P lending platforms
have been very effective as they reduces the time required for traditional bank loans from
a few weeks to a few hours.
P2P lending is a new platform of financial transactions that bypasses conventional
intermediaries by directly connecting borrowers and lenders. This new digital intermediary
was created on the basis of microcredit principles (Yum, Lee & Chae, 2012) and has rapidly
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grown in recent years. As of March 2008, over US$500 million in loans originated from
over twenty P2P lenders worldwide (Ashta & Assadi, 2009, 2010; Bruene & Bruene, 2008;
Magee, 2011). This exponential growth seems to have continued in the United States
(Pengo, 2011; Renton, 2011) and the United Kingdom (Bachmann et al., 2011). According
to Gartner (2010), by 2013, the industry will soar to US$5 billion. Renton (2012) reported
that the combined monthly loan volume of Lending Club ([Link]) and
[Link] ([Link]) exceeded US$50 million in February 2012, representing
a more than 100% annual growth rate. Some experts expected that P2P online exchange
will become an alternative platform for traditional saving and investment (Slavin 2007).
One prediction is that, within the next few years, such social banking platforms may have
a market share of 10% of the worldwide market for retail lending and financial planning
(Gartner 2008). The roots of the emergence of this crowd-sourced funding platform are
both economic and philanthropic (Wang & Greiner, 2011).
a. CHARACTERISTICS OF P2P LENDING:
Parallel lending has met the need for loans that have been "rejected" by traditional
banks. Profit from management fees: credit rating, risk level classification. According to
Davis and Murphy (2016), two types of P2P lending models are being used around the world:
o First, the P2P lending model proactively allows direct investors to select loans from
listed individuals. Investors view information relating to the anonymous applicant's
creditworthiness, such as annual income, homeownership status and purpose of the
loan.
o A passive P2P loan model whereby investors choose the type of risk they want and
the maturity level of the loan and the P2P provider will pair it with a set of loan
applications that meet the this criterion. Investors only know the average
characteristics of the groups of borrowers, not the specific characteristics of the
borrowers they have funded.
b. HOW TO CONDUCT A P2P TRANSACTION LENDING:
Basic P2P loan model.
Source: Davis & Murphy (2016)
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o Step 1: The borrower / client proceeds to apply for P2P Lending system, and the
opportunity to present their loan.
o Step 2: P2P lending confirms loans from the borrower, analyzes the risks of the loan,
analyzes the solvency of the borrower, and then rates the loan as Grade for the interest
rate. The corresponding capacity and online display for reference investors, invest in
it some money.
o Step 3: When these loans call for enough money the borrower / client needs, P2P
Lending will transfer money to them, and also be responsible for collecting money,
reporting to investors. Transactions are made.
c. THE BENEFITS OF P2P LENDING PLATFORMS
o Low cost: Operating on the Internet platform should not cost a lot of operators,
middlemen to approach the introduction of services to customers.
o Save time: Thanks to the Internet, the operations for the service are carried out
quickly, simply, saving time for both credit institutions and customers.
o Increased returns for investors: Lower service costs will result in investors earning
higher returns when compared to depositing or investing in any of their products.
Bank.
o Customer information is transparent: BigData technology assumes the role of
encrypting, storing and controlling all customer information, helping to validate
accurate customer information to help limit the amount of bad debt that can occur.
o Interesting interest rates: Lenders can earn higher returns than savings and investment
products provided by banks, while borrowers can borrow at lower interest rates.
d. THE COUNTERVAILING RISKS THAT P2P LENDING PLATFORMS
EXPERIENCE
o There is no legal framework: when a dispute arises, debt is shattered, the company
goes bankrupt ... the risk is that both the borrower and the lender are not protected by
law. In the United States due to different government regulations, P2P loans are not
widely applied nationally. States such as Iowa, New Mexico, North Carolina or
Pennsylvania are tighter and P2P loans are unlikely to be accepted there. In Brazil,
due to the lack of good credit scenarios, the risk is generally high. Unable to operate
P2P lending as a private business enterprise but instead must act as an agent bank,
this has damaged the meaning of P2P lending.
o Risks of use, the greatest risk to a P2P platform comes from the product itself, which
is an unsecured personal loan and no [Link] of information, the information
of customers is limited. Investors can not control what money is spent [Link] from
intermediariesand risk of network security.
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Number of P2P platforms encountered "problems" over the years in China
Source: Shen Wei (2016)
o In February 2016, China's Ezubao (P2P) peer lending platform was controlled by the
regulator for running an online Ponzi scheme. And in the United States, Lender's
Club, one of the world's largest peers of global peers, also has problems with
governance. The mistakes of Ezubao and Lender's Club have shown the risk to
investors (Adhikari & Anand, 2016).
e. EFFECT OF P2P LENDING TO BANK AND FINANCIAL INSTITUTIONS
Bank and the financial companyis one of the important partnersof model Peer to Peer
Lending with the role a lender. According to the Basel Committee on Banking Supervision
(BCBS), the three major service areas that Fintech has been involved in have a direct
impact on banking services such as mobilization and lending services, payment service
group and investment management services. While Fintech's innovative market support
services and new technologies are not related to any particular finance industry, they also
play an important role in the development of Fintech companies.
Currently, the development of the new Fintech is in the early stages so the impact
assessment for banks and business models of the bank is uncertain.
Some experts estimate that between 10-40% of sales and 20-60% of retail banking
earnings are threatened byFintech over the next 10 years while others argue that banks can
take on new competitors by their potential.
According to BCBS, there are five possible scenarios for the banking sector.
However, the possibility of only one scenario is very [Link], there is a mix of five
scenarios in different markets. It depends on the development of technology and the level
of development of the market. However, in what context will banks find it more difficult
to maintain traditional operating models in anticipation of technological change and
expectations from customers.
Mã số ISBN: 978-604-922-684-7 25
o Banks have to innovate themselves through modernization and digitization (The
Better Bank)
o New generation banks replace traditional banks (The New Bank)
o Bank put together with fintech businessprovide financial services (The Distributed
Bank)
o The bank becomes a third party service provider, customer service is directly
attributed to Fintech businesses or large technology companies (The Relegated Bank)
o Bank no longer fit and disappear (The Relegated Bank)
2. THE P2P COMPANIES AROUND THE WORLD
With the rising popularity of peer-to-peer lending platforms, peer competition and
products have increased as well. While these marketplaces operate on the same basic
principle, they vary in terms of eligibility criterion, loan rates, amounts and tenures as well
as offerings - some focus on personal loans and a few target students and young
professionals, while some cater exclusively to business needs. Below are some of the
popular peer-to-peer lending platforms around the globe.
Upstart, a venture by ex-Googlers, is a peer-to-peer lending platform with a
difference. It was founded in 2012 by Dave Giround, along with Paul Gu and Anna M.
Counselman as co-founders. Upstart states, “You are more than your credit score. On
Upstart, your education and experience help you get the rate you deserve.” Thus loan
eligibility is decided on factors that go beyond the FICO score, such as the school of
graduation, academic performance, area of study and work history. Upstart offers loans
starting from a minimum of $1,000 to a maximum of $50,000 at an annual percentage rate
(APR) starting at 7.43%. Upstart offers loans for almost everything, be it for repaying a
student loan or attending a boot camp, for buying a car or paying medical bills to supporting
a business. Upstart has become increasingly popular with the younger generation (20s and
30s) who don’t have a long credit history, making it hard to get a loan based on
conventional criteria, but who have the potential to honor the commitment.
Prosper Marketplace, Inc was the first ever peer-to-peer lending market place in the
U.S. The platform has grown tremendously since its inception; it now has a member base
of 250,000 people and has funded over $4 billion in loans. Prosper offers a wide range of
loans from debt consolidation to home improvement, short-term and bridge loans, auto and
vehicle loans, small business loans, baby and adoption loans, engagement ring financing,
special occasion loans, green loans and even military loans. These loans are offered starting
from a minimum $2,000 to a maximum of $35,000 for a term of 3 or 5 years, for rates
ranging from 5.99% to 36% annual percentage rate (APR) for first-time borrowers. Prosper
invites lenders to invest as little as $25 per note; these investments offer competitive returns
along with a monthly cash flow option.
Lending Club, founded in 2007 by Renaud Laplanche, Lending Club Corporation
(NYSE: LC) is a premier player in the peer-to-peer lending space. Lending Club is a giant
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in the online market place that connects lenders and borrowers; the total loans issued till
mid-2015 amounted to $11,167,217,348. Lending Club caters to loans for various purposes
like personal finance (consolidate debt, pay off credit cards, home improvement and pool
loans), business loans, patient financing (dentistry, fertility, hair and bariatric), as well as
for investing. The minimum personal loan amount offered is $1,000 ($15,000 for
businesses), going to a maximum of $35,000 ($300,000 for business). This popular brand
became the first publicly traded online peer-to-peer lending company in the U.S., with its
successful initial public offering (IPO) on the NYSE in December 2014. The company
currently has a market capitalization of 5.14 billion.
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3. THE P2P COMPANIES IN VIETNAM
a. TIMA COMPANY
Tima is one of the pioneers to enter financial technology industry since 2015, as the
first P2P lending provider in Vietnam with head office in Ha Noi. Initial investment capital
was VND150 billion, and from June 2016, Tima started to provide financial consultancy
and connection services, providing financial advisory services.
At the time of the official launch in December 2017, Tima's new loan volume was
1,000 applications per day. At present, the number of new loans has reached more than
2,000 applications per day. Tima aims to increase this number to 10,000 per day, while
piloting Online to Offline stores in 63 provinces ([Link]).
Characteristics of Tima
Simple: TIMA offers a convenient service that allows customers to register for an
online loan, browse the quick registration information by phone, sign the contract at the
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designated customer location. Simple procedure, flexible loan conditions make it easy to
access necessary funds. It is possible to say the loan application at the simplest of any
lender or any financial company. This is the biggest advantage when borrowing at heart.
Customers do not have to walk into different bank or prepare multiple records. Through
the automatic scoring system will browse the customer information quickly. This is very
convenient for both parties to save a lot of time and energy.
Fast: Depending on the different borrowing requirements and depending on the type
of loan as well as approval time varies. For example, as with Sim products, the loan
approval time is very fast because you are using the automatic credit scoring system, within
20-30 minutes will review the loan application. Customer support is disbursed quickly
during the day
After filling in the form, employee’s Tima will call you within 30 minutes to inform
the approved amount of the loan. As soon as you sign the contract, lender can receive the
money through lender’s bank account or at more than 4,000 transaction offices nationwide.
Trust: TIMA owns a nationwide network of transaction offices, providing high
quality financial advisory services. Tima provide complete and accurate information on
loans, interest and related costs when applying for a loan. You will be consulted carefully
and thoughtfully from the free consultation center to consider before making a decision
without having to worry about unclear service fees.
General Director of Tima is Mr. Nguyen Van Thuc, who sad “The Tima Financial
Linkage has the function of connecting borrowers and financial institutions. Once the
lender approves the loan application, the two parties will directly contact, verify the loan
and sign the contract. During the interconnection, Tima provides a free consultation service
through the switchboard for both lenders and borrowers to facilitate smooth and efficient
connection.”
For the purpose of meeting the needs of connecting loans with customers in the best
way. Tima announced that starting on March 4, 1818, Tima will officially apply for a fee
when receiving a transaction on the financial transaction floor. To improve the quality
quickly and most convenient for customers.
As of March 4, 2012 with each loan application, depending on the value of the loan,
the quality of the profile information, the credibility of the borrower will correspond to a
certain reasonable price. When dealing, customers will be consulted in detail about
this fee.
Regarding credit scoring system based on information from electronic network:
Based on information from the online, Tima can analyze specific information about
customers about the age, occupation, interests, relationships, the influence of customers to
the people around. So Tima can connect to the most trustworthy objects for customers.
In addition, based on social relationships with the rich or famous, he or she is likely
Mã số ISBN: 978-604-922-684-7 29
to be highly credible, ensuring the benefits to both parties when participating in the loan
package in Tima.
In the future Tima will reach out to the national market, but the potential for growth
in the Vietnamese market is still great. Of the 96 million people in Vietnam, up to 70% or
more have not been able to access formal sources, ie from banks and financial
institutions. It is an opportunity and a challenge for Tima.
Tima share a credit rating system based on information from social networks, not just
credit history (CIC) like banks
Information from our customers' social networks helps us analyze the age,
occupation, interests, relationships, customer impact, and so on. All that information is put
into Big Data system.
For example, on a social network, the credibility of a person is simply expressed, as
the person taking his / her real name for the name of Facebook will have a higher credit
score for the person who takes a false name.
Second is the social relationship: A person has a social relationship with the rich or
famous, he or she is likely to be a high credibility.
These are very small examples because the credit scoring system must judge based
on thousands of data, but the ones I have just exchanged are very small.
Tima’s statistical on 31/8/2018
Source: [Link]
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b. LENDBIZ COMPANY
Introduce: Lendbiz is the leading company in Vietnam in the area of P2P Lending,
which helps to connect enterprises with investors. Lendbiz's operating model allows
investors to help boost Vietnam's economy and make a fortune by investing directly in
businesses that need capital in their operations and development.
Lendbiz's mission: To promote the development of enterprises by providing
financial support, management consultancy via a reputable, transparent and efficient
trading floor. - Create a safe, prestigious and high-yield investment channel for investors
and the community.
How does Lendbiz support the two sides? - For businesses:
o Lendbiz supports the implementation of procedures for the completion of the
investment contract.
o They also transfer money directly to the account of the business and set up an account
to pay the principal, interest monthly. - For investors:
o Lendbiz supports the procedures for the completion of the investment contract.
o They will collect the principal and interest monthly and transfer it directly to the
investor account.
4. IMPLICATIONS FOR P2P LENDING BUSINESS IN VIETNAM
a. LEGAL BASIS FOR FINTECH IN VIETNAM
Fintech officially appeared in Vietnam in 2008. Fields of activity: Online loans,
Transfering money, Crowdfinding,…
Number
Field of
STT Company of Ratio
operation
company
VTPay, OnePay, VTCPay, BankPlus,
VinaPay, VNPay, Senpay, NganLuong,
1 Payment (mobile) ZingPay, BaoKim, 123Pay, WebMoney, 22 48%
CyberPay, 1Pay, SohaPay, Moca, Vimo,
Payoo, OnOnPay, Momo, FPT
Calling
2 FundStart, Comicola, Betado, Firststep 4 8%
(Crowdfunding)
Bitcoin Vietnam, VBTC Bitcoin,
3 Blockchain 4 8%
Copyrobo, Cardano Labo
Manage personal
4 Mobivi, Money Lover, Timo, kiu 4 8%
finance
Matchmove, Cash2vn, Nodestr,
5 Transfers 4 8%
Remittance Hub
Mã số ISBN: 978-604-922-684-7 31
6 Loan Loanvi, Tim, TrustCircle 3 6%
7 POS management Hottab, SoftPay, ibox 3 6%
8 Data management CircleBii, TrustingSocial 2 4%
Compare
9 BankGo, gobear 2 4%
information
100
Total 48
%
Source: Fintech News (2017), Fintech in Vietnam Update and new Infographic 2017
Benefit:
o Procedural and geographical barriers
o For Individual customers, Small Business
o Supplying diversified financial product portfolios
o Security
Opportunities: Young populalations, many internet users, trends in smartphone usage,…
Challenges: Incomplete, Connection, Customer perceptions and beliefs
b. POLICY AND SUGGESTION:
Policy Main content
The national e- To build and develop e-commerce infrastructure; To propagate,
commerce popularize and raise awareness on e-commerce; training and
development development of human resources for e-commerce; developing e-
program 2014-2020 commerce products and solutions; consultancy on e-commerce
(Decision No. 689 / application planning; international cooperation on e-
QĐ-TTg dated commerce; Enhancing management capacity and organizing e-
11/5/2014) commerce development activities
The Scheme on Building portals, service startup support centers; financial
Supporting a support; development of training activities; development of
National Innovation material-technical facilities; partially support the cost of building a
Innovation Initiative communications program, connecting start-up networks, start-up
to 2025 (Decision support, venture capital; introduction of partners, investors, support
No. 844 / QD-TTg procedures; To encourage the use of scientific and technological
dated 18/5/2016) development funds; Studying, proposing the issuance of new ones,
amending and supplementing necessary documents to promote the
environment for creative renewal of creativity.
Project on Establishing the legal framework, perfecting policy institutions,
enhancing access to creating a favorable environment for development of diversified
banking services for products and services; expanding the network, attaching
32 Mã số ISBN: 978-604-922-684-7
Policy Main content
the economy importance to the application of technology; improve the supply
(Decision No. 1726 / capacity, quality of information on customers, support credit
QD-TTg dated institutions to access information to improve credit
September 5, 2016) quality; Promote communication activities in the banking sector,
promote products and banking services to large numbers of people
in rural, remote and isolated areas, and strengthen the connection
between banks and enterprises.
Project on Improving the legal and policy framework; upgrading and
development of non- expanding the inter-bank electronic payment system; building and
cash payment in developing retail payment systems and services; promoting e-
Vietnam in the payment in the Government sector, public administrative
2016-2020 services; renewing the system of securities clearing and
period (Decision settlement; renovating the payment system; strengthening
No.2545 / QD-TTg management and supervision; promote information, propaganda,
dated 30 December training, guidance and protection of consumers; strengthen
2016) coordination mechanism to promote non-cash payment;
Project on the To perfect mechanisms, policies and priority on the application of
application of science and technology; to apply science and technology and
science and technical solutions to synchronize and modernize the commercial
technology in the infrastructure system; e-commerce development and business
process of models, modern distribution following the trend of the 4th
restructure the Industrial Revolution; To support enterprises in enhancing the
industry and trade up capacity of research, development, application, reception and
to 2025 with a vision transfer of technologies; Associate with scientific and technological
to 2030 (Decision organizations, research institutes, universities in research,
No. 754 / QD-TTg application of technology transfer, ..
dated 31/05/2017)
Establishing Submit the SBV Governor to approve the annual work program and
Steering Committee plan; Advising the Governor on solutions to improve the
on Financial ecosystem, including the completion of the legal framework to
Technology facilitate the development of Fintech businesses in Vietnam, in line
(Decision No. 328 / with the guidelines and orientations of the Government.
QD-NHNN dated 16 cover; Organize discussions and submit to the Governor to decide
March 2017) on important issues relating to Fintech such as strategies and plans
for the development of Fintech in Vietnam.
Project on Review and assess the current status of virtual property, virtual
completing the legal currency in Vietnam and study and survey relevant international
framework for experiences; To review, study and propose the amendment,
management and supplementation and promulgation of legal documents on electronic
handling of virtual money; Making proposals for the development of legal documents
Mã số ISBN: 978-604-922-684-7 33
Policy Main content
assets, electronic on virtual property; Studying, proposing amendments, supplements
money and virtual and promulgation of legal documents on tax on virtual assets; To
money (Decision study and propose measures to prevent, combat and handle
No. 1255 / QD-TTg violations related to virtual property and virtual money; To study
dated 21/8/2017) and propose amendments and supplements to laws and ordinances
aimed at perfecting the legal framework for management and
handling of virtual property and virtual money.
Source: Author summary from Policies
Suggestions:
o Set up a comprehensive management system on Fintech
o Educating about Fintech
o Cooperation and investment
The legality of the electronic transaction contract is still being left open.
o It is necessary to look back on civil contracts from the perspective of signing online
transactions, electronic documents. keep it. The existing policy gap needs to be
offset.
o According to current regulations, new credit institutions are mobilized and loaned.
So, when a dispute arises, both the borrower and the lender are not protected by law.
Lessons from other countries
Many traders advise investors to be aware that this is not a "money" channel, but
rather an investment channel. Investment is always risky, in which the biggest risk is loss
of money. Not to mention, besides P2P companies that operate in the same fashion as the
shared economy, there are "transformers" that use this model to disguise fraudulent or
fraudulent credit.
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