Bridging the gap between China’s shadow banking and traditional banking sectors, CreditEase is an online lending and investment platform that represents the increasing importance of the Chinese fintech industry. The firm was started in 2006 by CEO Ning Tang, who attended the prestigious Tsinghua University in Beijing and worked on Wall Street prior to founding his company.
Sara Hsu met with CEO Tang this week to discuss his firm’s position as a financial innovator in an industry where firms lacking best practices have crashed and burned. Here is an excerpt of her interview:
Sara Hsu: Do you think that P2P [peer to peer lending] firms like yours are helping to make China’s financial system more market-based?
Ning Tang: Definitely. The bigger picture is that P2P and fintech help the financial system to become more comprehensive. Eleven years ago we made financing available to students, and today we reach microbusinesses, entrepreneurs. These businesses are not traditionally covered by the financial system. Fintech helps make the financial system more comprehensive, and helps make bank services more efficient.
Sara Hsu: Many P2P companies have failed. What are some of the risks that P2P companies face?
Ning Tang: There are three major risks. One is the platform itself. Is it legit? Is it legal? In many cases, you see fraud. It’s not financial innovation at all, it’s a crime. The regulatory framework helps eliminate fraud cases. The second risk is on the borrower, the credit quality side. Even if it’s a legit market place, if it cannot assess risk, it will not be sustainable. It needs to do a good job assessing risk. The third risk is on the lending side—is the source of capital sustainable?