Blockchain sharpens Dianrong’s edge in P2P lending to small businesses
Dianrong to expand Shenzhen team as its teams up with Foxconn on the Chained Finance blockchain platform that aims to revolutionise supply chain finance.
Dianrong, one of China’s top peer-to-peer lending platforms, is combining blockchains to its loans assessment system, aimed at helping small and medium suppliers with unsteady cash flows breach the last mile of creditworthiness to obtain financing.
The proof of concept was in March, when Dianrong (點融) set up Chained Finance with FnConn, the financing arm of Foxconn, the world’s largest contract manufacturer of consumer electronics. Chained Finance originated US$6.5 million in loans for small and medium suppliers in a successful pilot.
“Finance is about managing information, the most important element is credibility and trust,” said Dianrong’s founder and chief executive Soul Htite, in an interview with the South China Morning Post. “Blockchain offers us a new model to maintain the transparency” of financial transaction information at very little cost, he said.
Blockchains, the distributed databases conceptualised in 2008 as core components of the digital currency bitcoin, are increasingly finding their way into financial technology and helping to redefine the boundaries of traditional banking. They can be used as open, distributed digital ledger systems that can record transactions efficiently.
With contracts embedded with certain business rules in the blockchain, manufacturers can ensure that suppliers only get paid if they abide by the agreement, preventing suppliers from outsourcing work while allowing manufacturers to know exactly which suppliers they are working with on a project.
Dianrong, founded in 2012 in Shanghai by the Lending Club’s alumnus Htite and Chinese entrepreneur Kevin Guo, originated 16.23 billion yuan (US$2.4 billion) of loans in 2016, more than double the year earlier. While lenders earn interests paid by borrowers, the platform takes a 10 per cent fee.
Dianrong and Foxconn are currently working together to apply the Chained Platform for Foxconn’s suppliers. Chained Finance is also in “advanced talks with some very large suppliers,” Htite said, declining to name them.
Dianrong is expanding its team in preparation for the increase in supply chain finance loans through Chained Finance. The company has plans to hire 500 more staff in Shenzhen in addition to the 60 they already employ, Htite said.
One of the challenges that Dianrong still faces is the misperception that users who cannot get a loan from the bank can easily get a loan from a P2P lender like Dianrong.
“You’re either a good quality borrower or a bad quality borrower,” said Htite, who said that Dianrong manages risk the same way banks do, by verifying a borrower’s ability to pay, the purpose of the loan and whether the borrower has at least some assets.
“We collect information about you and, based on how comfortable we are with your data, we give you the most competitive [loan],” said Htite.
“Dianrong is able to give a loan to a person based on data, in a country that only believes you can get a loan if you have an asset,” he said. “We’re [the alternative] between secure lending and shadow banking, which could charge you 60 per cent [interest].”