The competition in the credit market is becoming increasingly fierce, and consumer finance companies targeting the long-tail customer base need to seek new strategies in the era of existing stock.
The mid-year report shows that in the first half of 2024, the business income and net profit of several leading consumer finance companies such as China UnionPay, MiaoShang, and Xingye all decreased year-on-year, and their total assets also showed a significant contraction.
Against the backdrop of macroeconomic fluctuations, decreased repayment ability, and frequent "anti-collection" activities, some consumer finance companies, on the one hand, are trying to reduce costs to the greatest extent under controllable risks, and on the other hand, have increased their tolerance for overdue payments.
Recently, during a research visit to China UnionPay Consumer Finance, two strategies were learned: on the one hand, establishing channels for customers to increase their credit autonomously, and on the other hand, enhancing the repayment confidence of overdue customers. China UnionPay refers to the above two practices as "self-confidence" and "self-healing".
The natural mismatch between the long-tail customer base and price reduction
Compared to commercial banks, consumer finance companies cannot directly attract deposits, have higher funding costs, and target a longer-tail customer base.
In the research, the two core concerns of consumer credit customers are the amount and price. According to assessments, about 2/3 of the consumer finance customer base reported insufficient credit limits, and some customers hope for lower prices.However, the long-tail customer base represents a weaker ability to withstand risks, which is inherently mismatched with the more inclusive low pricing. If traditional models are forced to reduce prices, it would violate the laws of sustainable business. Therefore, achieving precise risk control through financial technology, continuously reducing operational costs, and feeding back to front-end pricing has become the approach of China United.
China United stated that establishing a channel for customers to enhance their own creditworthiness, called the "Self-Confidence" service, allows customers to upload materials on their own to prove they have better credit qualifications, belonging to a customer segment with a lower delinquency rate, in order to obtain higher credit limits and lower prices. Supported proof materials include personal income tax, housing provident fund, income, and various bills.
After customers upload materials on their own, China United uses digital means for identification and credit approval, reducing operational costs to the greatest extent while meeting risk control requirements.
China United provided a set of data to reporters, showing that so far, the "Self-Confidence" service has reduced prices for more than 15 million customers; in the credit approval terminal, about 40% of customers have completed self-service certification and approval at times when traditional institutions could not provide credit services.
In addition, China United's fully online model, without setting up physical branches, is similar to digital banks. Wang Yaonan, Chief Information Officer of China United, told reporters that there is a misalignment in the customer base between digital banks and consumer finance companies, but from a technical perspective, there is not much of an essential difference.
Digital technology reshapes the post-loan model.
Affected by economic cycle fluctuations and a decline in residents' repayment ability, in recent years, black and gray industries such as "anti-collection alliances" and "debt evasion" have been rampant.
Industry insiders told reporters from the 21st Century Economic Report that traditional post-loan management adopts a human sea tactic, with uneven service quality and unsustainable cost structure. On the other hand, while regulatory authorities crack down on illegal organizations such as "anti-collection alliances," licensed financial institutions also need to continuously standardize their own collection behaviors.The National Financial Regulatory Administration officially implemented the "Consumer Finance Company Management Measures" in April 2024. It is clearly stipulated that consumer finance companies should establish a system for the collection management of overdue loans, and should not use violence, threats, intimidation, harassment, or other improper means for collection. They are also prohibited from collecting from third parties unrelated to the debt. The collection process should be managed and recorded, with relevant data and materials preserved for at least 5 years.
Violent collection often backfires, easily leading to overdue customers losing confidence in repayment. The approach of consumer finance companies is to moderately increase the tolerance for non-performing assets, which actually increases the probability of recovering non-performing assets.
Zhonglian stated that the company has launched a service called "Self-Healing," which evolves the traditional model of "actively seeking customers" in post-loan management to an interactive model of "customers actively seeking." A dedicated page is set up in the APP to present overdue solutions.
The collection model is supported by data capabilities. Wang Yaonan, Chief Information Officer of Zhonglian, said in an interview with reporters from the 21st Century Economic Report that Zhonglian's large model uses open-source data. Internally, the data is trained in a professional and vertical direction and is highly integrated with the business. Zhonglian predicts changes in indicators such as employment rates through data feedback from the business, and then adjusts the collection strategy based on these tags.
"Zhonglian is very restrained in the use of external data, preferring to efficiently integrate and apply internal data, standardizing the mining of all customer lifecycle data to reduce cost expenses. On the other hand, in recent years, the proportion of manual collection at Zhonglian has been declining, using AI to improve service efficiency, which helps to reduce costs and increase efficiency, and feeds back to the front-end pricing." Wang Yaonan said.
Addressing the shortage of financial mediation resources
In post-loan management, customer complaints and collection activities are directly related to the dispute resolution mechanism in the financial field.
The reporter learned in the investigation that the current supply and demand contradiction of the dispute resolution mechanism in the financial field is relatively prominent, which is specifically manifested as insufficient smoothness of legal channels and insufficient mediation resources to alleviate the contradictions between lenders and borrowers. This has led to a large amount of debt collection by financial institutions focusing on collection channels, intensifying the contradictions between financial institutions and consumers, and the development of digital finance still has a closed-loop shortcoming.In fact, digital finance is a social engineering project, and the improvement of digital financial infrastructure also helps to resolve social livelihood issues such as conflict mediation. Previously, the Shenzhen Financial Regulatory Bureau took the lead in formulating a three-year action plan for the digital transformation of the banking and insurance industries across the entire system, guiding financial institutions to accelerate their digital transformation.
In response, the person in charge of China United said three suggestions from the aspects of digital credit investigation, online mediation, and online courts: First, improve the existing digital credit investigation system, explore new models for opening public data to licensed credit investigation institutions, and apply data legally and compliantly in the credit field; Second, accelerate the implementation of online financial commercial mediation centers; Third, increase the regional layout of online courts, break through the bottleneck of supply of rule of law resources, effectively combat "black and gray industries", reduce credit costs, and form a credit closed loop.
According to statistics, at the end of 2023, the asset scale of 31 licensed consumer finance companies was 1.15 trillion yuan, which is still less than 1/10 of the overall scale of the consumer credit industry.
Regarding the uneven digital level of the industry and the slow digital transformation of small and medium-sized institutions, the person in charge of China United said that it is suggested that leading enterprises with the ability to implement the regulatory guidance on "encouraging leading financial institutions with technology to export risk control tools and technical services to small and medium-sized financial institutions", and empower their own scientific and technological capabilities to small and medium-sized financial institutions.
On the one hand, export low-cost, high-efficiency, customized and compliant intelligent products and services, help the latter greatly improve business processing efficiency, and avoid the repeated construction of "small and complete" similar infrastructure.
On the other hand, with the help of efficient, high-quality and controllable digital services, it can further reduce and resolve consumer protection complaints and other issues in inclusive finance business, enhance the reputation of the industry, and reduce resource waste caused by customer complaints.