Lack of mechanism distorting P2P

Peer-to-peer lending (P2P) in Vietnam is getting more and more members, but this market is getting distorted by less active components.

Illustrative photo.
Illustrative photo.

Huge supply and demand

According to RAPBANK data, the supply and demand for P2P loans is becoming huge. As of June 2019, deposits at credit institutions had reached VND 4,720 trn, which did not include gold and real estate investment channels. This shows that people who have money need a safe, transparent, profitable and legal channel for their investments.

The State Bank of Vietnam (SBV) also showed that in the first six months of 2019, the total number of borrowers updated by CIC in the credit information database increased by nearly two million, compared to the end of 2018, by upto 40.9 million people. Meanwhile, many people are restricted from accessing credit institutions, such as people living in remote areas; people unable to prove their cash flow or sound income with credit institutions and financial companies; or people with demand for loans of less than VND 50 mn.

In addition, forms of collecting and assessing non-credit information from among people such as consumption habits, consumption quota of basic services, shopping behavior, services used, relationships, Facebook social network activities, also show favorable conditions for P2P development in Vietnam.

Big challenge

However, in the past, P2P lending in Vietnam developed spontaneously, though fragmented and serving mainly specific groups of investors with a desire to earn as much profit as possible, pushing costs onto customers. However, P2P lending is not really as smart as expected. Therefore, the market is increasingly hostile to online lending applications. In the opinion of RAPBANK, market participants will always be welcome

if provided a decent P2P platform with appropriate interest rates, together with assessment and evaluation to provide sufficient information to the parties.

P2P is a new service that was not available in Vietnam before. Regarding the behavior of Vietnamese consumers, regardless of the forms of borrowing through banks and credit institutions, money coming from outside is mainly through relatives, friends and colleagues based on personal assessments or through people introduction. In addition, people are not familiar with using a P2P platform and dealing with strangers through a third-party. At the same time, a wave of bankruptcy of P2P companies in China, and black P2P loans developing P2P applications and websites has affected the psychology of users who want to participate in the P2P market. In addition, there is also the limitation of financial knowledge in people, leading to abuse of P2P service to become a channel of black credit.

Another important point, in Vietnam there is no sufficient and synchronized population data source for customer analysis and evaluation. This greatly affects the credit quality in Vietnam. More importantly, there is currently no orientation, focal point, governing agency or professional association in the field of financial technology (fintech). Therefore, it takes more time for the market to shape and legal executives to provide specific regulations and guidelines.

Particular mechanisms required

Currently, RAPBANK has developed a policy of operation and interest rate framework in accordance with the provisions of the law, but still ensures a balanced interest for the parties involved. The user is the one who regulates the mutual behavior in the market built by RAPBANK, eliminating the participation of less active members. The technology is leveraged to attract the vast majority of potential users, but opting for direct access by an elite team of qualified appraisers to screen and gather accurate, high-value, quality-enhanced information of each connection. In the long term, RAPBANK plans to build a financial educational program, and train financial skills to improve people's financial knowledge and decision-making capabilities.

RAPBANK hopes to have more comprehensive cooperation with banks and financial companies. Specifically, instead of being a unit that helps find customers for banks, RAPBANK hopes that it can become a consulting unit, and with collected customer information, RAPBANK believes that it is possible to improve the lending process at banks, and help banks to minimize paperwork but still ensure credit quality and loan efficiency. On the side of state agencies, RAPBANK hopes to become a pilot unit, accompanying the State Bank of Vietnam in developing a standard mechanisms and robust regulations to manage the market.

Translated by Mathew Hùng

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