W37 - On Adjusting the Judicial Protection Cap for Private Loan Interest Rates
On August 20, the Supreme People’s Court issued a newly revised ‘‘Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases,’’ lowering the judicial protection cap for private lending interest rates to 15.4%, a significant drop from the previous 24% and 36%. The previous ‘‘two-threshold, three-zone’’ regime based on annual rates of 24% and 36% has officially become history.
Recently I noticed industry news about adjusting the judicial protection cap for private lending rates. Considering Jinfu’s business, I reflected on the opportunities and challenges this brings us.
Basic information about lending products:
Revenue: Fintech companies currently offering lending services generally follow two models
One is to use their own data and models as a technology service provider, offering anti-fraud, credit assessment, risk pricing and other services. Purely B2B, with revenue coming from technology service fees.
The other builds on those technical capabilities and partners with banks and other financial institutions on funding. They develop and operate lending products themselves and participate in customer acquisition, post-loan processes, and more. Within this there are two types: brokered loans (bank funds) and co-funded loans (bank and fintech co-funding).
Most leading companies adopt the second model. The advantage is the ability to capture scale returns from lending, but deep involvement in lending inevitably invites regulatory pressure.
Cost composition: funding cost (10%–14%) + bad debt (2%–5%) + customer acquisition, R&D, operations, credit checks, payment channel fees, and collection costs (5%) => Industry average annualized rate above 17%
Interest levels of business loans. After trying loan-payment products,From current business loan pricing, the standard price is a daily rate of 0.0005 (0.05%), which converts to an annualized rate of 18%.The lender in the agreement is Chongqing Meituan Sankuai Microfinance, which appears to be our own funds and does not involve banks or other external fund providers, though there are brokered and co-funded loans.
Impact of adjusting the lending rate cap on the industry:Use judicial protection changes to force market participants to lower private lending rates,Leading fintech companies will face thin margins, most fintechs will incur losses and be forced to exit the market in large numbers.
Challenges:Like other competitors in the industry, this compresses our relative profit margins, making it harder to make money.
Opportunities:Industry restructuring will accelerate the elimination of laggards and create intense competition among the strong. Under compliant conditions,the breakthrough is to leverage advantages in data, technology, and scenarios to do activities with decreasing marginal costs; the absolute profits generated from scale still have significant potential.In fact, Ant Microloan’s breakthrough lies in micro merchants in the retail sector. Traditional financial institutions, such as banks, lack the ability to reach down into underserved user groups. For lower-income, non-institutionalized populations, they lack multidimensional data and advanced models for credit assessment. Joint-stock banks like China Merchants Bank have pushed credit card products to sink into user segments; after covering white-collar groups, it is difficult for them to expand coverage more broadly.Their approach converges with ours: the first and most important step is to accumulate a sufficiently large account base. From experience, the users we should serve are micro merchants in the catering industry.
Strategy:Income from the first model is limited; continue to deepen the second model,focus on our advantaged scenarios and micro customer segments, keep expanding the account base, strengthen intelligent analysis of multidimensional data, reduce bad debt rates, and attract lower-cost funding.
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