At the beginning of 2024, there will be frequent important personnel changes in the consumer finance industry. For example, the general manager of a licensed consumer finance company switched jobs to a waist loan institution; The leader of a fintech company jumped to another lending institution.
They are all responsible for the same new business – some call it "agency operation", some call it "joint operation", some call it "digital inclusive credit solution", and some call it "To Bank financial digital technology". There are many different names and operating models, but at the end of the day, they all aim to help banks do their own business by providing a set of technology solutions. We will introduce it with "To Bank Financial Mathematics".
This is a faint reflection of the current situation of the mutual finance industry - since 2024, the new loans in the industry have hit a new low, and market risks are rising. The growth of the original main business has slowed down, and if you want to keep the balance, there are only two paths, either the customer base will continue to move down and increase the proportion of high-risk assets; Either transform into a new track, and then drive business growth.
To Bank is a new business that various lending institutions are trying to start. Previously, New Hope Fintech has blazed a trail in this field, causing the industry to follow suit.
"This is the direction that has been set since last year." A person close to Orange Digital said that the company has already prepared a new division, and the business is expected to become a new profit growth point this year.
01
The key is to build a relationship of trust
On the To B track, there have long been traditional hardware service providers, including Yusys Technologies and Sunline Technology, to provide IT solutions for banks. Later, the technical barriers of Internet companies have not yet been established, so most of them only provide various customer acquisition and diversion services for banks and other companies. Later, he also participated in the credit business, and gradually emerged models such as loan assistance and joint loans.
To Bank's financial digital technology service is an Internet platform that helps banks establish digital systems and operate customer groups by outputting services such as customer acquisition and risk control. Capital, technology and customers are all in the hands of the bank. In a word, this model is to help banks do a good job of self-management.
In this field, the early large manufacturers also got involved, but they were not successful.
Xiao A was first in charge of the business at JD Digital (now JD Technology), and he concluded that this model has two biggest drawbacks, one is extremely high operating costs, and the other is facing data compliance problems.
He said that banks have data compliance requirements, and data cannot be shipped out of the warehouse, so a dedicated team is required to settle in, and the cost of on-site is extremely high. At the beginning, JD Digital Technology entered the market, and the most it did was model building, but the operation and customer acquisition system could not be replicated, or the replication cost was extremely high. For example, a page recall that drops off a customer alone requires at least three systems. Many organizations cannot afford such high system and labor costs.
Later, Lexin, one of the leading platforms, launched the "Regional Bank Co-growth" plan in 2021, released the "Joint Operation" solution, and reached a strategic cooperation with a trillion-level city commercial bank.
Lexin has made a relatively asset-light transformation of the model. In this type of cooperation, Lexin contributes people and technology, and banks contribute funds, and then the two share profits according to a certain percentage.
At that time, in addition to the constraints of high costs, the trust relationship between banks and platform parties was also under construction. Therefore, some bank practitioners who have been in contact with this business said that although banks want business volume, if the platform does not take risks, it is difficult for them to trust the other party's risk control capabilities. In their view, the transformation of lending institutions into the To B track is just a means for lending platforms to win over investors.
Therefore, in the actual cooperation, most of the platforms have implemented the "bottom-up, half-bottom" model, and only by taking all or part of the risk can they obtain orders for To Bank's financial digital technology business.
Therefore, although large manufacturers such as JD Digital and Lexin are vying to be the first to lay out, in fact, this kind of business is "thundering loudly and raining little". It is difficult to build trust between banks and Internet companies, which makes it difficult to actually do business and make money from it. In the past few years, there have been layoffs and shutdowns of the business, and there are not many people who can come out and stick to it.
02
The president led the team to "seek assets"
In 2023, an unprecedented asset shortage will make this track hot again. But after the test of time, there are not many players left with real strength.
Among them, Lexin's deep cultivation in this field has been recognized by the market. The more obvious change is that Lexin said in the third quarter report of 2023 that Lexin has accelerated its efforts to Bank financial and digital technology business, and has landed in many banks to create benchmark cases. By providing financial institutions with a number of technology and digital services, it helps institutions accelerate their digital upgrading and enhance their core credit capabilities.
In addition, the head platform Qifu Technology is also making efforts. According to the financial report for the third quarter of 2023, it has signed financial technology business services with three new financial institutions, including joint-stock banks, Internet banks, and private banks. The company said that in the future, it will export full-process solutions to more financial institutions, and more customers will be launched on a large scale in the future.
The consumer finance industry has learned that in this round of To Bank's financial digital business boom, compared with before, the enthusiasm of banks is particularly high.
On the one hand, asset shortage has become a problem for the whole industry, and banks have an unprecedented urgent demand for assets. "The president/vice president of XX Bank leads the team to ask for assets" has become the mantra that has spread to the present in the industry last year.
At present, the asset shortage has not eased. "The year before last, we cooperated with Lexin, Xinye and other institutions, and the cost of capital could reach 8%, last year it was about 5-6%, and this year it is even lower." A practitioner said that even so, there are not many assets to divide.
The consumer finance industry has learned that the current cost of capital for the head platform has dropped to about 4%.
Internet fintech platforms are at the forefront of the market, and of course they are well versed in the demands of financial institutions. In fact, not only small and medium-sized banks and consumer finance companies, but also large city commercial banks and joint-stock banks, have an equally urgent demand for assets.
On the other hand, in the previous loan assistance and joint loan cooperation, financial institutions and Internet companies usually signed a three-year customer protection agreement, but now that the three-year period has expired, financial institutions want to conduct independent marketing to these customers.
Coupled with the guidance of regulatory policies and concerns about the scale and quality of assets, platforms with fintech capabilities have joined To Bank's financial digital business development. The consumer finance industry has learned that the current active platforms of the business include Meituan Financial Services, JD Technology, Lexin, Qifu, Zhong'an, Xiaoying, Juzi, Shuhe and other institutions, whose digital and risk control capabilities have been recognized by the banking industry and accelerated business expansion through word-of-mouth communication.
However, the consumer finance industry found that there is also a "low-key" institution on this track, New Hope Fintech, which has been deeply engaged in this field for 6 years and has successfully found a way.
According to public data, as of the second quarter of 2023, New Hope Fintech has established cooperative relations with more than 450 banks such as Shanghai Rural Commercial Bank and Shaanxi Xinhe, supporting banks' own products, independent risk control, and independent lending of more than 500 billion yuan, and achieving accurate services for nearly 17 million people. According to the official website, the number of commercial banks served by the company has exceeded 500. By adopting the Tianxiang CROS smart retail platform provided by New Hope, many small and medium-sized banks have realized the iteration of products and tools, and the cooperative banks are more and more deeply bound to it.
03
The business is integrated
Revealing the financial report, we can see the strong growth of To Bank's financial digital business, and we can see that this type of business has also appeared in a more detailed division.
In the fourth quarter of 2023 financial report, Qifu Technology disclosed that there are two main models for serving financial institutions such as banks:
One model is the capital-light model, the Intelligent Credit Engine ("ICE"). Specifically, "ICE" is an open platform on the "360 IOU" application, which matches borrowers with financial institutions through big data and cloud computing technology in "ICE" and provides borrowers' pre-loan investigation reports. The company does not assume any risk for loans matched through "ICE", and the scale of loans matched through "ICE" in the fourth quarter of 2023 is 16.610 billion yuan.
The other is "other technical solutions". Under this solution, the company provides financial institutions with on-premise, large-scale risk management SaaS to help financial institution partners improve credit assessment results. In the fourth quarter of 2023, the scale of loan matching through other technology solutions was 29.705 billion yuan.
In the fourth quarter, the company disclosed that it disbursed a total of RMB68.239 billion in loans under the capital-light model, intelligent credit engine ("ICE") and other technology solutions, accounting for 57.3% of the total loan origination, an increase of 16.8% from RMB58.438 billion in the same period in 2022. This has become one of the rare highlights of the platform. As of December 31, 2023, the outstanding balance of "ICE" and other technical solutions was 20.810 billion yuan and 41.527 billion yuan, respectively.
From the perspective of the industry, platforms with real technical capabilities will gradually become technical service providers, and their capabilities have been recognized by the banking industry for many years, with strong brands and good trust relationships with banks in cooperation. Moreover, this kind of business fully complies with the requirements of the regulator and will become bigger and bigger.
Of course, the relationship of trust is a two-way street. Some banks are small in size and have a weak ability to take risks themselves, so they only accept "bottom-up" commitment plans for external cooperation. Therefore, some platforms have no choice but to launch To Bank financial digital services with a back-up. However, whether this still falls under the category of helping banks to do "self-operation" remains to be discussed.
In general, in the current cooperation between the platform and banks and other financial institutions, whether it is the financial digital technology service of a technical service provider such as New Hope, or the asset-light cooperation service launched by the Internet platform, it is an effort in the direction of To Bank's financial digital technology service.
There are policy factors to guide the banking industry to do a good job in self-management, there are differences in the trust relationship and technical strength between the two sides, there are considerations in the relationship between capital and asset supply, and long-term planning for business sustainability, etc., but they are all inseparable from the foundation of consumer lending intermediaries to provide services to financial institutions. The financial digital technology model of loan assistance, joint loan and To Bank is forming comprehensive service capabilities, and the platform can provide corresponding solutions according to the needs of financial business in order to survive the competition. The differentiation of the industry will also become more and more obvious.
Either way, however, the need for banks seems to be growing.
Take China Merchants Bank, the king of retail, as an example, to achieve revenue of 339.123 billion yuan in 2023, a year-on-year decrease of 1.64%, which is the first time in the past ten years that there has been a negative annual revenue growth; In addition, although the net profit in 2023 will reach 146.602 billion yuan, a year-on-year increase of 6.22%, the growth rate will slow down significantly compared with 15.08% in 2022 and 23.20% in 2021.
In today's increasingly severe asset shortage, for banks, it is a way to expand their self-operated scale through the To Bank financial digital technology model including Qifu Technology and Lexin. Could this be a good track for transformation? Are there any unknown regulatory risks? The future development is unknown, but if there is really any good experience in the development of the bank's retail business today, I am afraid that there is only one thing, and that is to fear the risk.