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Analysis EO
Jul 2, 2020 10:02 pm ·

A Closer Look at Du Xiaoman Financial: the Competition and the Future

► The Baidu-backed company still lacks core competitiveness among main players in the industry, such as Ant Technology and JD Digits. ► The encouraging potential in the entire fintech industry provides a lot of large room for Du Xiaoman to grow. In the previous article, we introduced the development path of Du Xiaoman Financial. Here, we explain its market position among the smart finance industry and go over its future opportunities in the consumer finance market.  The necessity of strengthening barriers among competitors In the to-B business competition, Du Xiaoman has certain advantages. Supported by the Baidu ecosystem and its technology base, the company outperforms competitors in terms of the traffic and data volume.  However, technology is what makes a real difference, and this has to serve the financial industry. The main players, Ant Technology, which is supported by Alibaba’s empire, JD Digits, which is backed by JD.com, and even the rising star – the Tencent Fintech – are all showing great interest in ‘AI+ Finance’, although with different entry points in the fintech industry.  Moreover, all of them have years of experience in finance with a certain number of successful commercialized projects and significant number of to-C clients. For example, Ant Technology and Tencent Fintech have an over 1 billion of individual client base, which way outperform than the figure of nearly 400 million for Du Xiaoman. Fair to say, in the smart finance field, Du Xiaoman still has a long way to go.  When looking at the valuation, there is a lot of room to grow for Du Xiaoman. Take Ant Technology and JD Digits as examples  – both are operating independently operating from former parent companies,  with valuations of CNY 1000 billion and CNY 130 billion respectively, overrunning the figure of CNY 20 billion for Du Xiaoman, according to Hurun Unicorn List 2019. In fact, JD Digits is already worth around CNY 200 billion after the change in ownership this June.  For financial institutions, technology is not the only factor for choosing a partnership. The database, the successfully commercialized projects and the individual client number are all crucial. For Du Xiaoman, the solutions and services are similar to other players that, who also have coverage on risk management, intelligent client attraction, smart client representatives. Therefore, deeply exploring more diversified services with differentiated products will be a way for Du Xiaoman to erect its barrier in the industry.  Future opportunities Though the competition is likely to get fiercer in the entire fintech field, the consumer finance and smart finance industries are still in their early stages. Seizing the opportunities in a timely way can also help Du Xiaoman to maintain its position or even grow larger.  The entire financial services industry is transforming into an online-based entity with more comprehensive supervision and systematic organization.  Financial services are moving online   The Chinese government stated the growth rate for small business loans from large commercial banks should reach 40% in 2020, which requires the banks to master their risk management capabilities. The higher requirements from the government is urging the banks to ask for third-party companies in technology support, especially in the credit review process, which was dependent on offline manual work.  This provides large opportunities for fintech companies, who run the business in consumer finance, such as Du Xiaoman, in many dimensions.  Because of the similarity between a small business loan and a personal loan, which are both high risk, with fewer or no collateral and hard to screen, consumer finance companies can provide experience-based business models and solutions for banks. Du Xiaoman, for example, has been focusing on personal credit services for years, along with technology screening solutions, which will play an important role in better promoting small business loan services to meet the government’s requirements.  Moreover, the formally manpower-driven credit review process requires large investments in labor but still has low efficiency. Fintech companies are adding fuel for banks in the technology transformation to the machine-reviewing process. Especially in the COVID-19 period, the ‘robotic callers’ from Du Xiaoman saved 30% of the labor costs for clients in March.  The increasing number of small businesses and the lower thresholds for borrowing also pushed up the demands for credit loan services.  Driven by the pandemic, people are spending more time online and have started getting used to it. Online investment and financing, another important business of Du Xiaoman, has significantly benefited from this trend.  The consumer finance services are gradually moving to the online space, where fintech companies are playing a crucial part. Financial Services are becoming more systematic  The increasing pressure on the regulatory side and the comprehensive application of high technologies are forming a more orderly financial industry.  The encouragement from the government on mass entrepreneurship has prompted a series of default rates, which will be more convenient for loan-providers such as Du Xiaoman. The central bank also increased the loan proportion for larger commercial banks to provide more fund support to small businesses.  What is more, the application of AI and big data makes the online credit system more controllable and efficient. Take ‘Panshi,’ an open platform of Du Xiaoman, as an example. The technology-based solutions on receivable collection help the financial institutions to save 40%-50% labor force, with the number of daily calls from robot callers similar to the figures from 300 human collectors’ daily workload. 

Analysis EO
Analysis · 2
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Analysis EO
Jul 2, 2020 09:52 pm ·

Du Xiaoman Financial: From an Accessory to a Spotlight

► After five years of deployment, Du Xiaoman has formed a business structure centered on AI-based personal credit and financing services, with several technology platforms opened and to-B solutions provided.  ► Du Xiaoman plays an important role in helping traditional banks to transform, lifting it to a valuation of over 20 billion and a ‘global unicorn’ status.  Du Xiaoman Financial, the fintech arm of Baidu, was established in December 2015 as a financial department with the name of ‘Baidu Finance.’ In late 2016, the personal financing and personal credit service was also launched, forming the remaining twofold structure of Du Xiaoman.  Based on AI and big data, the credit platform provides customized loan suggestions on different clients’ demands. It is now focusing on exploring installment loans in the education market. Backed by Baidu, Du Xiaoman possesses fairly good R&D capabilities, helping clients select among diverse investment products, including stocks, funds, insurance packages and other complex portfolios issued by large banks.  Du Xiaoman Wallet, a cash management platform, was developed to support the two main services, the personal credit and financing, also allowing clients to access various life scenarios, such as credit cards, utility and phone bill payments, food delivery service, gas services and movie tickets booking. The strategic cooperation with PayPal in 2017, which planned to explore the Chinese market through Baidu Wallet, now Du Xiaoman Wallet, marks a debut on the international arena.  Afterwards, the co-establishment of AI Bank with China CITIC Bank would also be a successful result for the company’s 2 years of deployment. AI Bank is a small financial institution operating in the microlending market with target clients among young people who want to start their own business and small businesses that need funds to scale up.   In 2017, Du Xiaoman started to explore the B2B market, with three platforms under operation:  > ‘Panshi’ (Chinese: 磐石 – ‘monolith’) focuses on antifraud supervision services. It debuted early that year and was opened to financial institutions later on. It provides one-stop customized solutions to banks on the entire credit loan process. The automatic model building product can significantly increase the efficiency for technician in building data computing and risk management models. The ‘Holmes’ system helps financial institutions with antifraud identification and credit assessments. As of the end of May 2020, the queries on Panshi had increased by over 50% from December 2019, and the company expects the figure to rise by 200% by the end of 2020.  > ‘Yunfan’ (Chinese: 云帆—‘cloud sail’), another open platform, is built around AI-based solutions on financial advisor and client acquisition, to help traditional banks transform to smart banks smoothly. The cooperation with Agricultural Bank of China was the first time Du Xiaoman applied its smart financial solutions to the traditional banking sector.  > Open blockchain platform ‘BaaS’ (Blockchain as a Service), is designed to help small businesses build their own blockchain systems. Along with this, the smart Asset Backed Securities (ABS) issuance platform allows businesses to issue ABS products based on blockchain. The first exchange-traded ABS product with blockchain-based issuance process launched as an SSE in September 2017. In 2018, the former financial department finally became an independent business, named ‘Du Xiaoman Financial.’ This year, the company started to actively cooperate with traditional banks, such as Bank of Nanjing, Bank of Tianjin, Harbin Bank and China Everbright Bank, in supporting risk management system building and intelligent financial advisor application.  In 2019, Du Xiaoman continued to upgrade and advance the business, and further explore to-B area. As of the end of 2019, the company had supported more than 50 banks with technology solutions, with loans exceeding CNY 500 billion, credited users reaching 330 million and the interest income surpassing CNY 10 billion. Now the company has formed a business structure with a main focus on AI-driven personal credit and personal financing services, and several tech-based platforms and to-B solutions provided.  In the bank sector’s transformation from traditional to Internet-based finance, and then on the journey to smart finance now, fintech companies have played a crucial part. As a main player in this field, Du Xiaoman has already done a lot and will do more.  we are following an article to take a closer look at Du Xiaoman's current position and its future.

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Aug 6, 2019 04:14 pm · eo company

Du Xiaoman's history of financial loss

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Analysis EO
May 11, 2019 11:54 pm ·

Internet Plus Personal Credit Rating Should Be An Act of Empower not Abuse

The trade war between China and the US has occupied the front page of mass media worldwide for quite a long time. At the same time, competitions in other industries such as 5G, Artificial Intelligence, aerospace exploration have exacerbated this gaming between the two biggest economic entities. However, the basic infrastructure and international policies are even more crucial in the long term confrontation at a national level. The prosperity of a country’s economy is closely related to its infrastructure in the payment system (including clearing system and settlement system) and its credit system. China has fallen behind developed countries in both areas for centuries. Until recent years, the payment industry, especially the mobile payment industry in China has surpassed many developed countries in the payment coverage and transaction volume. On the other hand, the credit rating industry is catching up quickly but still facing a large gap when compared with the credit systems in the countries such as the US and Germany. Therefore, in this article, we will look into one of the key infrastructures in China, the personal crediting rating industry, to compare it with the traditional personal credit rating approach, find the key players in the market and draw some questions on its future regulation and industry integration. According to the People's Bank of China (PBOC), the resident loans in financial institutions gain great momentum in recent four years. The four-year CAGR of consumer loans from 2013 to 2017 was as high as 24.9%, of which medium and long-term consumer loans accounted for nearly 80% of the total amount. Moreover, as the internet finance enters the stage of substantive business development, more financial activities will be completed through the network. In an iReach report in 2017, China’s internet consumer finance loan amount will reach nearly CNY 10 trillion. The great volume and potential in China's financial market baring a higher risk of system risk as the variety and complexity of future business will generate more individual information data. Therefore, a healthy economy is inseparable to a reliable credit system. China’s Credit System In China, the credit rating market has been formed into a system dominated by PBOC and assisted by the market-based credit rating agencies. The credit rating system is divided into two parts: corporate credit and personal credit. The corporate credit information basic database began in 1997 and achieved nationwide online inquiry in July 2006. While the personal credit information basic database was first started in 1999, and completed at the end of August 2005 operated together with all commercial banks and some qualified Rural Credit Cooperatives (农村信用社) in the country. In January 2006, the basic database of personal credit information was officially launched. In 2013, the PBOC promulgated the Regulations on the Credit Information Management, announcing that in addition to the Credit Reference Center of PBOC (中国人民银行征信中心), it allowed other corporate credit agencies to participate in market-based credit rating business. As of Jan.1, 2019, there are more than 500 filing companies nationwide. On Feb. 22, 2018, the PBOC issued the first personal credit License plate to Baihangzhengxin (百行征信, short for Baihang), with 8 key players in the market as its shareholders and more than 250 companies as its cooperating institutions. Up to now, the PBOC’s Credit Reference Center has collected information of 990 million natural persons and more than 25 million enterprises and other organizations, accessing 3564 and 3465 institutions, with an annual inquiry volume of 1.76 billion and 110 million respectively. Baihang Emerges as the Times Require The construction of the domestic credit information system originated from credit-related businesses such as loaning and leasing. The PBOC's credit information is acquired from financial institutions, and the main users of PBOC’s Credit Reference Center are also financial institutions. Therefore, it is difficult for the credit system in PBOC to fully cover credit information outside the financial institutions to reach to individuals. And that is the main reason that the development of the personal credit rating lags far behind the corporate credit rating, not even to mention the personal credit rating system in developed countries. With the development of internet finance in recent years, a large number of individual or netizens that are difficult to cover by traditional finance are becoming reachable online. At the same time, the risk of internet finance has become more complex and diverse. As information asymmetry has intensified, risks such as fraud and malicious default have appeared. Demand for credit information products and services are more urgent, however, it would be almost impossible to achieve system docking between the emerging internet organizations with the PBOC's credit system. On one hand, the low entry threshold of the internet financial industry made companies far from meeting the basic requirement by PBOC in data standardization, compliance reporting capacity, data security mechanism and the protection system of investor privacy, etc. The legal status and regulatory framework of the internet financial institutions have not yet been clarified. On the other hand, the technical limitation of internet financial institutions stops many institutions from information exchanging between the PBOC’s credit system. Thirdly, the information of individual borrowers between the credit platforms and the P2P platforms is not shared, while the platforms do not have the incentive to cooperate with each other to prevent default risk. Then the credit risk of mutual debt would create isolated data islands. Baihang is established under these circumstances, aiming to connect the isolated data islands between from different internet financial institutions and functions as a substitution (a very helpful one indeed) of the PBOC’s personal credit information database. National Internet Finance Association of China (NIFA,中国互联网金融协会) owns the largest share of 36% of Baihang Credit, other 8 companies including Sesame Credit under Ant Financial and Tencent Credit, owns 8% of the shares, altogether making up the rest of the shareholders. Moreover, Baihang will act as comprehensive access for small loan companies and online lending institutions, to realize information sharing and risk linkage warning between traditional credit information system and Baihang’s credit system supported by more than 500 other internet financial institutions (including Du Xiaoman, who newly launched its personal credit rating product Xiaomanfen), and to promptly identify and resolve the potential financial risks. Difference Between the PBOC’s and Baihang’s Personal Credit Rating Baihang’s personal credit data is mainly gathered from online activities. By using technologies such as big data and cloud computing, Baihang will dramatically expand the data category of the credit information database, promoted the technological transition of credit information processing methods and the traditional credit rating models, and will play an important role in improving China's credit system and even the social credit system. Compared with PBOC’s traditional credit rating, Baihang’s approach differs in the main body of credit rating, credit data source, and data processing methods. Firstly, the PBOC is in a dominant position in China's credit rating system, and the PBOC Credit Reference center has been interconnected with most commercial banks, some microfinance companies and financing guarantee companies. The main body of Baihang’s credit data is relatively decentralized, market-oriented and diversified. Internet companies represented by Baidu, Alibaba, Tencent, and JD.com, and existing market-based credit rating companies, such as CCX Credit and PY Credit, focus on a certain segment or a certain business segment to provide targeted and customized services on credit-related businesses. Secondly, as mentioned above, the PBOC’s data source is mainly from loaning business while Baihang’s data are sourced online containing users’ transaction data, social-network data, dining, entertaining and other various scenarios which are called weak-featured data. Last but not least, in terms of data processing, compared with the PBOC, Haihang has a relatively high requirement for data processing, data cleaning and data verifying. Unstructured data such as audio and text are processed to create a dynamic and continuous model. In the data collection and transmission, blockchain technology, especially the access mechanism of the alliance blockchain are applied in verification and supervision of data information. Future Challenges for Baihang As an innovative approach in personal credit rating, Baihang is also facing problems while bringing inspiration and reform to traditional credit reporting. For one thing, the user’s privacy issues which have been continuously pointed out. The internet users are the ones with the highest authority for the use of user data. However, this fact has been neglected and will lay future risks of privacy leaking incidents. In 2018, the European Union enacted a remarkable law, the General Data Protection Regulations (GDPR) involving 27 EU countries. The most important principle of this law is to protect personal privacy to the utmost extent, and strictly limit the conditions for the use of personal information data by enterprises and governments. For another, the quality or authenticity of the massive data generated on the internet is questionable. The credit behavior online is a highly virtualized however not easy to examine and verify. In terms of e-commerce, the credit data accumulation basis of most e-commerce websites is based on the number of successful transactions, while ignoring the content and amount of transactions, so that the phenomenon of using credit transactions to quickly improve credit ratings, such as false evaluations and scalping (刷单) to increase the credibility and prestige of the website rating. With the issues mentioned, Baihang as a benchmark for individual credit rating will definitely develop shared data standards, ensuring high quality and credibility of data, establishing a standardized personal credit data platform, and reducing the threshold for industry access.

Analysis EO
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Analysis EO
May 10, 2019 02:45 pm ·

Du Xiaoman Launches Personal Credit Rating Product Against Its Rivals

Du Xiaoman launches a personal crediting product named Panshi Xiaomanfen (磐石小满分) recently, aiming to cover the vast majority of netizens in China, combining generic portraits with financial exclusive portraits for credit quantification assessment, solving problems such as insufficient data of domestic credit application users and low credit coverage across the country. According to Du Xiaoman, Xiaomanfen (short for Panshi Xiaomanfen) is a comprehensive evaluation system based on big data algorithm that can provide a comprehensive personal credit score based on users' personal feature, credit history, compliance, and other dimensions. At present, the credit score of Xiaomanfen ranges from 350 points to 950 points, and the Xiaomanfen users with a score of 700 or more will receive exclusive rights and value-added services in Du Xiaoman’s financial product. Xiaomanfen services are continuously upgrading, with a variety of credit consumption scenarios adding in its ecosystem. After the launch of the Sesame Credit (芝麻信用) by Ant Financial in January 2015, at least 10 rating products have appeared in the personal credit rating sector. Below shows some key players in the market. By comparing Xiaomanfen with other personal credit rating products, we find a great homogeneity between their rating metrics. Since most of China's personal credit rating products are drawn from the US FICO score and the German Schufa score for scoring system design. FICO's score ranges from 300 to 850, and Schufa's score ranges from 0 to 100. FICO's scores cover five dimensions: payment history, credit utilization, length of credit history, new credit, and credit mix. The information collected by Schufa includes basic personal information, rental records, criminal records, bills, and payment histories. The players in the personal credit rating sector can be divided into two categories: players from traditional rating agencies and players rise from internet giant companies. The latter owns a huge amount of life-related credit data such as dining, shopping, entertaining, etc. These are called weak-featured data however can be more accurately applied in personal credit identification. Alipay, JD.com, Tenpay, and Baidu are all establishing their unique scoring system by big data analysis plus the traditional approaches. It is generally known that personal credit rating products are not isolated, but can be inextricably linked with other business scenarios. Credit consumption, credit lending, and credit leasing have become three scenarios that personal credit scores can be applied. Therefore, the personal credit rating as a product itself is not as important as the function it applies in completing the closed-loop business model for companies.   Du Xiaoman, who separated from Baidu in April 2018, is the latest in the personal credit rating business and also falls behind its competitors in credit-related businesses. An important reason for Du Xiaoman’s dilemma is that it is difficult for Baidu to obtain the identities of the user from its search engine, the main business in its own ecosystem. For Ant Financial, Alipay is acting as the huge entrance to different consumption scenarios through the mobile payment business. For Tenpay, the strong social networks it has built also leverage the ability in user identification and risk assessment. What’s more, for Du Xiaoman, only obtain information such as the mobile phone numbers cannot effectively identify its users. Therefore, Du Xiaoman’s loan business is still at an early stage. Only after Xiaomanfen accumulating enough real-name account information, will Du Xiaoman have the opportunity to carry out credit businesses in various scenarios. It can be seen that the introduction of Xiaomanfen is beneficial to Du Xiaoman after its independent operation to obtain informative data in the form of credit scores. Du Xiaoman is linked to the Baihang Credit (百行征信) access system soon after its separation from Baidu. Baihang Credit is the first personal credit license issued by The People's Bank Of China (PBOC). National Internet Finance Association of China (NIFA,中国互联网金融协会) owns the largest share of 36% of Baihang Credit, other 8 companies including Sesame Credit and Tencent Credit, owns 8% of the shares, altogether making up the rest of the shareholders. These eight shareholders of Baihang Credit are large in the market volume. Under the supervision of the PBOC, Baihang Credit is expected to establish a general personal credit rating standard applicable in the industry.