As a fintech company that focuses on tech and relies heavily on finance, the roll-out into the growing auto finance industry is a new opportunity for Bairong’s business growth and greater data acquisition and integration.
Improved efficiency and better risk management were key to auto finance’s long term development. PHOTO: credit to Alex Suprun on Unsplash
Fintech unicorn, Beijing-based Bairong Inc. (百融金服), is making its foray into the fast-growing auto finance industry in China, attempting to providing auto financing institutions’ businesses with safer and more efficient risk management solutions.
As a popular scenario of finance with great potential, risk management is crucial and urgent for auto financing organizations’ healthy business growth. Although being the world’s largest market for auto sales, China is still in an early stage in terms of its auto finance industry, with a relatively low penetration rate of 38% compared with other developed countries which have seen penetration rates between 50% and 80%. Countries with mature auto finance industry usually find a lucrative profit margin of 20% while the average sales profit margin is only 5%.
A significant gap is there but China’s auto finance has gained great momentum from customers’ changing behavior, Internet finance, favorable policies and technologies such Big Data and Cloud Computing, etc. Players including professional car rental companies, automakers, dealerships, banks, finance companies and so forth are active to grab a share of the auto finance market, of which the estimated market size reaches CNY 1.2 trillion in 2018 and is predicted to exceed CNY 2 trillion in 2020 at a CAGR (Compound Annual Growth Rate) of 26%.
From 2004 to 2014, banks and car makers’ financing subsidiaries took up the lion’s share (over 90%) and benefited from the rapid growth of China’s new-car market. Banks wanted to lend more while car makers used it as a way to build customer retention with their brands. Later, other players joined the game as Internet finance brought new opportunieties.
In 2017, auto finance found new opportunities in the burgeoning used-car market, of which the size was expected to exceed CNY 1 billion in 2020 and the used-car auto finance penetration rate was only 15%. Meanwhile, leasing or lease buyout is trending, which - according to many insiders - is vital in the future auto finance as new car sales in China have started to slow down as well as China’s GDP growth.
For customers, they’ve witnessed a digitally-transformed experience regarding auto financing, of which the processes have become more efficient and simplified. A survey conducted by J.D. Power in 2018 showed that 35% of the respondents stated they would continue to purchase the desired vehicle with the help of a desired auto finance option. 38% said they would have postponed their purchase if auto financing services had not been available.
Greater profitability in finance comes with fiercer competition and greater risks. Auto finance has become a prime target of fraud and theft, given that cars are not stationary capital items and can be re-mortgaged. Auto financing organizations’ businesses are threatened by fraud, synthetic identities, stolen identities, and organized crime rings. It was reported that there was a professional fraud chain that had caused the auto finance industry a substantial loss of over CNY 300 million (USD 45 million).
In addition, many auto financing players are struggling with the problem of non-performing loans. In 2004, China’s state-owned banks had 80% of all the auto non-performing loans. More recently, source reveals that the average rate of non-performing debts is still above 5%, which is supposed to be kept lower than 3%. Some companies even have higher rates at 40%.
Bairong aims to address auto finance's problems. Bairong’s vice-president and Fintech Senor Director, ZHANG Zhengyuan (张正媛), noted that improved efficiency and better risk management were key to auto finance’s long term development. Any player who wants to survive the fierce competition and go big in the market is acknowledging fintech’s capabilities in terms of the two priorities. “From car makers to the end customers, information is highly-dispersed, resulting in asymmetry. That’s where Bairong’s working on: to build an integrated and shared info-flow throughout the auto finance industry with more transparency”, she said.
Bairong’s service covers the full lifespan of clients’ auto finance products such as auto down payments, auto leasing and auto mortgage loans. This involves Bairong’s core fintech modeling to help with identity check, anti-fraud, credit limit for lower risks, smart debt collection, car evaluation, GPS tracking and maintenance records check, etc.
Bairong has accumulated the data of over 700 million individuals since its inception in 2014 as a Big Data platform. Over 3000 financial institutions including China’s state-owned banks, commercial banks, insurance companies and other financial companies have used its technology. The accuracy of its anti-fraud mode and fraud-rooting-out model reaches up to 95%.
As a fintech company that focuses on tech and relies heavily on finance, the roll-out into the growing auto finance industry is a new opportunity for Bairong’s business growth. Moreover, this attempt, in turn, maximizes its data’s value, upgrade its tech and further integrates new information from the auto finance communities to form a multi-dimensional data ecosystem that can better serve other clients in the finance industry. Yet, the figures and evidence about to what extent fintech actually contribute to auto finance remain as a question.
Data remain essential while mining data for appropriate application in different scenarios is a long run. The data that it holds fails short in keeping risks in check due to short time frame of accumulation. The auto finance industry, still growing with many problems in less-regulated “chaos”, needs a credit-checking and standardized evaluation system where data play a big role. Bairong’s goal to bring more efficiency and keep down risks might take more than technology to accomplish, because it’s also fighting against the evil side of human nature: greedy.