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Comparative analysis of peer-to-peer lending in China and the United Kingdom: an assessment of the Lending Plaza’s market entry prospects

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Comparative analysis of peer-to-peer lending in China and the United Kingdom: an assessment of the Lending Plaza’s market entry prospects

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Comparative Analysis of Peer-to-Peer Lending in China and the United Kingdom:
An Assessment of The Lending Plaza’s Market Entry Prospects

Deyin Gan
UNIVERSITY OF SOUTHERN CALIFORNIA
Master of Arts (STRATEGIC PUBLIC RELATIONS)
Thesis Committee Chair: Jennifer Floto
May, 2017

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Table of Contents
Section Page
TABLE OF FIGURES .................................................................................................................. IV
LIST OF TABLES ......................................................................................................................... V
CHAPTER 1: INTRODUCTION ................................................................................................... 1
CHAPTER 2: BACKGROUND ..................................................................................................... 5
2.1 P2P Lending Definitions ....................................................................................................... 5
2.2 How P2P Platforms Work..................................................................................................... 6
2.3 Market Review of P2P Lending in the UK ........................................................................... 8
2.4 Market Review of P2P Lending in China ........................................................................... 10
2.5 The Lending Plaza .............................................................................................................. 11
CHAPTER 3: PROBLEM DEFINITION ..................................................................................... 13
3.1 Statement of the Problem .................................................................................................... 13
3.2 Criteria for Success ............................................................................................................. 14
3.3 Decision Makers: Internal, Senior-Level Stakeholders ...................................................... 14
3.4 External Stakeholders: Affected or Related Parties ............................................................ 16
3.5 Constraints on the Problem-Solving ................................................................................... 17
3.5.1 Chinese P2P Lending Market Constraints ................................................................... 17
3.5.2 Budgetary and Time Constraints.................................................................................. 18
3.5.3 Research Constraints .................................................................................................... 18
CHAPTER 4: WHY IS P2P LENDING IMPORTANT? A LITERATURE REVIEW ............... 19
4.1 Aspects of P2P Lending ...................................................................................................... 20
4.1.1 P2P Lending Techniques ............................................................................................. 21
4.1.2 Risks of P2P Lending ................................................................................................... 22

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4.1.3 Interactions between P2P Lenders and External Stakeholders .................................... 23
4.2 Loan Evaluation Considerations ......................................................................................... 25
4.2.1 Financial-Based Creditworthiness ............................................................................... 25
4.2.2 Demographical Attributes ............................................................................................ 26
4.2.3 Soft Factors and Social Defaults .................................................................................. 27
4.3 Framework for Problem-Solving ........................................................................................ 28
CHAPTER 5: BUSINESS MODELLING OF P2P LENDING FIRMS ...................................... 30
5.1 Operational Transparency ................................................................................................... 31
5.2 Disintermediation of Banking ............................................................................................. 32
CHAPTER 6: RESEARCH METHOD ........................................................................................ 35
6.1 Case Studies and Content Analysis Approach .................................................................... 35
6.2 Ground Theory Approach ................................................................................................... 37
6.3 Data ..................................................................................................................................... 38
6.4 Limitations and Problems ................................................................................................... 39
CHAPTER 7: FINDINGS AND ANALYSIS .............................................................................. 41
7.1 Analysis of Zopa ................................................................................................................. 42
7.1.1 Borrower Types............................................................................................................ 42
7.1.2 Investing with Zopa ..................................................................................................... 43
7.1.3 Investment products ..................................................................................................... 44
7.2 Analysis of Chinese Platforms ............................................................................................ 46
7.2.1 Investors Data .............................................................................................................. 48
7.2.2 Borrowers Data ............................................................................................................ 49
7.3 Comparison of Zopa and Chinese Platforms ...................................................................... 50
7.3.1 Business Models .......................................................................................................... 51
7.3.2 Financial Performance ................................................................................................. 52

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7.3.3 Investments and Institutional Credit Sources............................................................... 52
7.3.4 Basic Loan Performance and History .......................................................................... 53
7.4 Issues Facing P2P Lending Startups in China .................................................................... 54
CHAPTER 8: DISCUSSION ........................................................................................................ 57
8.1 Lessons from Zopa.............................................................................................................. 58
8.2 Lessons from the Chinese Platforms .................................................................................. 59
8.3 Adapting to China’s Regulatory Environment ................................................................... 61
8.4 Situation Analysis ............................................................................................................... 62
8.4.1 Strengths....................................................................................................................... 62
8.4.2 Weaknesses .................................................................................................................. 63
8.4.3 Opportunities ................................................................................................................ 63
8.4.4 Threats .......................................................................................................................... 64
CHAPTER 9: THE STRATEGIC PLANNING MODEL APPROACH TO SENSITIZING THE
MARKET TO LENDING PLAZA’S ENTRY ............................................................................. 65
9.1 Research undertaken ........................................................................................................... 65
9.2 Strategic Planning ............................................................................................................... 67
9.2.1 Communication Objectives .......................................................................................... 67
9.2.2 Possible Strategy Approaches ...................................................................................... 68
9.3 Tactics ................................................................................................................................. 69
9.4 Evaluation ........................................................................................................................... 70
9.5 Budget and Timeline ........................................................................................................... 70
CHAPTER 10: TAKEAWAYS FOR THE LENDING PLAZA AND CONCLUSIONS ........... 71
WORKS CITED ........................................................................................................................... 74

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Table of Figures
Figure 1: A simplified illustration of how P2P platforms work ......................................... 7
Figure 2: The Lending Plaza’s decision-making hierarchy .............................................. 16
Figure 3: A stakeholder view of the P2P lender’s interconnected relationships .............. 24
Figure 4: Zopa’s responses to NPLs and defaults ............................................................. 44

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List of Tables
Table 1: Loan volumes of UK P2P lending firms............................................................... 9
Table 2: Zopa’s typical borrower profiling ....................................................................... 43
Table 3: Zopa’s investment products ................................................................................ 45
Table 4: Zopa’s historical rates of return (2011 – 2016) .................................................. 46
Table 5: The investors’ age structure in Chinese P2P platforms ...................................... 49
Table 6: Loan values of selected Chinese P2P lending firms (2012 – 2014) ................... 50
Table 7: Loan usage of RenRenDai’s loans ...................................................................... 50

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CHAPTER 1: INTRODUCTION
After the almost meltdown of the global financial system in 2008, individuals lost confidence in
the traditionally regulated banks. In addition to having to contend with fewer sources of credit,
borrowers also had to bear the costs of bailing out the affected financial instructions through
their taxes (Pew Charitable Trusts). As a result, banks became an unpopular choice for
intermediating between borrowers and credit sources. Conversely, the new model of peer-to-peer
(P2P) lending gained traction because it offered a simple platform for individuals and small
businesses to borrow from other individual lenders. In the UK, for instance, the P2P lending
site—Zopa—had been issuing unsecured personal loans since 2005 (Meyer). In turn, it inspired
the establishment of other P2P lending platforms—such as the San Francisco-based, Prosper
Marketplace, Inc.
Reports indicate that P2P lending has become an important alternative financing model in
recent years. For example, the global industry commanded a US$26.16 billion value in 2015,
with prospects of growing up to US$897.85 billion by 2024 (Transparency Market Research
cited in Bajpai). Even though the industry grapples with a lack of valid data, NASDAQ
nonetheless estimates that China’s P2P lending market is the “largest and the most dynamic in
the world with more than 4,000 providers operating in the market today” (Bajpai, para.7).
Comparable figures, however, estimate that the worth of the Chinese P2P lending industry could
be in the range of US$20 billion to 40 billion (Deer et al. 7).
The proposed introduction of a new P2P platform, known as the Lending Plaza would,
therefore take advantage of the increasing uptake of P2P-based loans and the corresponding
growth of investment returns in China. Lending Plaza’s founder and Chief Executive Officer
(CEO), Kun Song has already developed the website that will provide the marketplace’s
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infrastructure. However, the Lending Plaza’s site runs on United States servers to mitigate the
security challenges associated with Chinese online financial services. Still, common lending
practices between the Chinese inform the Lending Plaza’s potential of meeting its objectives in a
short operating period. Rotating savings and credit associations (ROSCAs), for instance, are a
popular form of lending between individuals in China. Loan sharks, who also offer a rudimentary
form of peer-to-peer credit facilities, usually complement ROSCAs (Chorzempa). While
effective to some extent, these examples show the prevailing financial sentiment of the Chinese
to peer-to-peer concepts, which unfortunately, encourages the founding of unregulated and
“problem platforms” (Chorzempa).
Before 2016, the P2P Chinese Lending industry largely operated in a regulatory vacuum.
This is in contrast to the U.K. where P2P lending is subject to heavy monitoring and regulation
by the Financial Conduct Authority (FCA) (Pope). Nonetheless, the success of Chinese P2P
platforms, such as CreditEase, RenRenDai, and Lufax suggests that P2P platforms have a
potential of carving a larger market share out of the Chinese lending industry. Older U.K.
platforms, such as Zopa, also provide a lesson on market entry for a new player, like the
proposed Lending Plaza. In essence, the Lending Plaza will put more emphasis on the case study
of Zopa, as opposed to the U.S. P2P lending platforms, because Zopa is the oldest firm that has
reported exceptional financial performance since its inception. Moreover, the focus on Zopa
simplifies the comparative analysis between the Chinese firms and a Western firm – hence,
increasing the chances of the Lending Plaza unearthing the best practices it would need to
establish itself in the Chinese P2P lending sector.
The Lending Plaza targets younger customers, mainly those between 25 to 40 years. The
platform bases its approach on the ongoing trends where younger customers prefer doing their
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banking business online as opposed to visiting brick-and-mortar bank branches (Atz and Bholat).
To attract the intended consumer segment, the Lending Plaza would need to put up a speedy,
secure, and slick website because it has the highest probability of attracting the younger
generations.
The Lending Plaza will deploy a direct lending model, which is fully online-based. In its
direct lending model, the Lending Plaza would join the ranks of CreditEase and RenRenDai, who
are the main direct P2P lenders in China. Nevertheless, the Lending Plaza would differentiate
itself from CreditEase and RenRenDai by using a technology-based online platform, similar to
PaiPaiDai (Deer et al.). Yet, while players, such as PaiPaiDai and Jimubox, have P2P sites that
are accessible online, they also have brick-and-mortar facilities where customers can conduct
their business (Deer et al.). Thus to minimize the overhead costs of running physical branches,
the Landing Platform would stick to a pure online-based, direct-lending model.
To operate in the Chinese lending market, the Lending Plaza would need to fulfill the
conditions set forth by China Banking Regulatory Commission (CBRC), which acts as the
supervisory agency for P2P lending (Deer et al.). For instance, the Lending Plaza will have to
meet the minimum capital requirements that the CBRC prescribes for Internet finance
companies. Furthermore, the proposed platform would also have to operate the direct-lending
model, according to CBRC guidelines.
To describe the challenges and prospects that the Lending Plaza is likely to face, this
paper will rely on content analysis and data from interviews to assess the P2P lending industry in
China. It will also provide a comparative analysis of P2P lenders in the U.K. and China, such as
Zopa, CreditEase, PaiPaiDai, and RenRenDai. Some of the content analysis data will come from
Wangdaizhijia and YesMyLoan, which are the largest online portals for the Chinese P2P lending
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industry. Additionally, findings from an interview with the Lending Plaza’s CEO will provide
insights into the platform’s strategic approach as it seeks to enter the Chinese P2P lending
market.
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CHAPTER 2: BACKGROUND
P2P lending is a disruptive finance model. One of its most noticeable and significant features is
its disintermediation ability (Berger and Gleisner). Unlike in conventional banking, the P2P
finance approach provides a direct link between the lenders and the borrowers. Moreover,
because the P2P platforms enable involved parties to interact with minimal associated overhead
costs, the platforms afford to make profits from modest administration fees. For example, Zopa
charges only 1 percent out of approved loans (Zopa, How Zopa Works). In contrast, the
Sainsbury’s Bank (a U.K. conventional financial institution) charges a 3 percent interest rate on
approved, personal loans (Sainsbury’s Bank).
The P2P finance model relies on the Internet for provision of online platforms where
involved parties can transact. In addition, the increased regulation of traditional financial
institutions makes it easier for P2P platforms to grab the market share from banks (Herzenstein
and Andrews). Still, the growing popularity of P2P finance has created unforeseen risks for both
the customers and the regulation authorities. For instance, the model has introduced
fragmentation into the finance sector, which makes it more difficult for regulators to formulate
the necessary policies at an acceptable rate. On the other hand, the P2P lending approach offers
low barriers to entry, which exposes the borrowers and lenders to unscrupulous P2P platforms
(Jingu).
2.1 P2P LENDING DEFINITIONS
According to Tyler Aveni, peer-to-peer lending “is part of a large umbrella of non-traditional
financing wherein funds for different purposes are solicited from the public online, widely
known as ‘crowdfunding’” (4). The author also suggests that P2P lending be referred to as
“social lending” or “marketplace lending” (4). However, other studies, such as Peer-to-Peer
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Lending by Alexandra Mateescu, find the use of the term “peer-to-peer” to be a misnomer. That
is because contemporary P2P platforms facilitate borrowers to access credit provided by a group
of lenders (Mateescu 1). Moreover, since the P2P platforms rely on the funds from the lenders to
serve their borrowers, it is now a common practice to refer to the lenders as ‘investors’
(Mateescu). Thus simply put, “P2P lending platforms bring individuals with surplus funds in
contact with individuals seeking a loan” (Sparreboom and Duflos 41). In essence, therefore, the
P2P finance model provides an alternative to credit facilities associated with the conventional
banking systems.
2.2 HOW P2P PLATFORMS WORK
In the simplest form, P2P platforms offer loans to borrowers through three major phases, namely:
(1) loan application; (2) loan evaluation, and; (3) loan approval and repayment (see Figure 1).
Before one can apply for a loan, he or she must first sign up online to become a member
of a particular P2P platform. After signing up, the P2P platform requires the borrower to provide
the necessary personal and financial information. Thus on applying for a loan, the platform can
disqualify applicants based on the veracity of the provided information. In normal cases, P2P
lending platforms verify whether the borrower can afford to repay his or her loans by checking
the employment history and the associated credit history (Aveni). If the borrower has existing
records of fraud, for instance, the platform automatically rejects their loan requests and marks
them as a risky case.
A given platform’s investors or lenders browse the available loan requests and decide
which applications to invest in and how much they can fund. Because the borrowers fill their
platform profiles with details such as employment history, lenders can decide whether they are
willing to risk lending to a particular borrower. On the other hand, the P2P platforms classify the
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borrowers according to their risk status, which the lenders can also use to determine how much
they should give out. On top of that, the platform may provide a field on the loan application
form where the borrower can add his or her personal narrative regarding why they deserve to
have their loan application approved. To make it a level-playing field; however, the P2P platform
may decide to leave out the borrower’s identifying data—such as gender, religion, or even
profile photo—to reduce the possibilities of prejudice-based funding (Mateescu).

Figure 1: A simplified illustration of how P2P platforms work
If a borrower succeeds in getting a loan, the P2P platform charges the lenders some
administration fees until the borrower settles the full loan amount. Nevertheless, the management
of the repayment phase is highly involving, and it would force the P2P lending company to
employ a third party, such as a bank or a debt-collection agency. Whereas banks assist the P2P
companies to handle the money, the debt collectors follow up on cases where borrowers default
on their repayments. Other third party actors may include data analysis and reporting services,
which assist the P2P companies in managing the data of their loan portfolios (Aveni).
The P2P finance model makes it easier for borrowers to receive funds for their loans by
allowing multiple lenders to contribute to a particular loan request. Through the approach,
lenders also enjoy a wide risk spread because they can invest small amounts in a considerable
number of loan requests. As a result, the P2P lending marketplace creates a collaborative
1. Application
• Borrower applies for loan
2. Evaluation
• P2P platform evaluates
borrower's credit score
• Platform facilitates funding
from lenders
3. Approval
• If credit-worthy, platform
the borrower's loan
application
• Borrower repays loan using
agreed payment plan
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framework where lenders contribute to the funding of multiple accounts. Furthermore, by
providing the data of the borrowers’ profiles, P2P platforms simplify the work for investors who
wish to automate their lending portfolios (Mateescu).
Although the P2P lending framework provides an alternative to the traditional financing
from banks, it is susceptible to issues, such as a lack of protection by regulation authorities. The
UK’s Financial Services Compensation Scheme (FSCS), for instance, does not protect the money
users invest in P2P financial entities. That means that in case anything goes wrong, individuals
could fail to recover their money (Financial Services Compensation Scheme).
2.3 MARKET REVIEW OF P2P LENDING IN THE UK
According to the Bank of England, there are three major P2P lending platforms in the U.K.,
namely:
(1) Zopa;
(2) RateSetter; and
(3) The Funding Circle (Atz and Bholat).
Of the three, Zopa provides a compelling case study in P2P lending since it essentially
was the first P2P lending firm to be established globally.
In recent years, UK’s marketplace lending has developed into a disruptive force in the
financial sector (Deloitte LLP). For example, it has caused an increase in the number of
transactions that Britons transact online. In addition to growing the customers’ expectations for
immediacy, it has also generated large amounts data, such as credit scores, which is available
online (Deloitte LLP). The increasing success of UK’s P2P lenders is attributable to a low
market entry barrier, which is unlike the need for a significant capital outlay required for
establishing a conventional bank (Atz and Bholat).
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Table 1: Loan volumes of UK P2P lending firms
2010 2011 2012 2013 2014 2015
P2P business lending *13.75 42.50 100.00 455.00 1207.50 2031.25
P2P consumer lending 71.25 71.25 156.25 355.00 710.00 1392.50
Total 85.00 113.75 256.25 810.00 1917.50 3423.75
*figures are in US$ million
Between the years, 2010 and 2015, the share of P2P consumer lending increased from
0.05 to 0.96 percent of the total consumer lending. Similarly, the share of P2P business lending
increased from 0.003 to 0.51 percent of the total business lending in the same period (Deloitte
LLP 8). The compound annual growth rate (CAGR) of P2P business lending in that period was
171.6 percent, while the CAGR for P2P consumer lending was 81.2 percent. The figures indicate
that the UK P2P lending industry enjoyed an unprecedented growth, thus illustrating the positive
performance of P2P lending in the finance market (see Table 1).
Essentially, the UK P2P finance industry features four major competitive advantages over
the conventional banking sector, namely:
(1) An operation model that comprises of low overhead costs;
(2) An ability to exploit Big Data that enables it to score risk efficiently;
(3) Provision of user-friendly and speedy online interfaces that create a superior
experience for customers; and
(4) An ability to fulfill and sustain the risk appetites of both the lenders and borrowers
(Deloitte LLP).
The P2P lending industry features stiff competition, which forces the lending firms to
offer low interest rate charges on their loans. The largest firm, Zopa, for instance, charges its
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borrowers up to 2 percent of the approved loan amount, while RateSetter and the Funding Circle
charge up to 2 percent (Evans). However, other smaller players charge their borrowers interest
according to their credit rating, with borrowers at risk of default paying higher fees. Examples of
such P2P lenders includes LendInvest and Landbay (Evans).
The UK P2P firms enable returns for their lenders in the range of 4 to 7 percent. Zopa, for
example, facilitates its investors to make up to 5 percent on returns on fully repaid loans.
However, that is lower than Funding Circle’s rates of return, which were 7 percent by the year
2016 (Evans). On the other hand, smaller players, such as Landbay offer their investors between
4.5 and 4.7 percent in returns.
2.4 MARKET REVIEW OF P2P LENDING IN CHINA
It is challenging to get verifiable data on Chinese P2P lending firms (Jingu; Peng et al.).
Nevertheless, estimates by the People’s Bank of China (PBoC) indicate that there were more
than 350 P2P lending firms by the end of 2013 in the country. However, Wangdaizhijia provides
a more optimist projection than the PBoC. It estimates that there were approximately 800 P2P
lending firms by the end of 2013. It also reports that the number increased to 1,184 by the end of
2014 (Jingu 2).
The setup of the Chinese financial sector creates a substantial need for the establishment
of novel lending approaches, such as P2P lending. First, at the onset of the twenty-first century,
the traditional banking outfits started to move away from serving customers who were either
non-salaried or did had meager incomes. Instead, these institutions increasingly focused on
salaried employees and mid- to large-sized companies (Sparreboom and Duflos).
Second, Chinese households are largely dependent on peer-to-peer lending from close
relations, such as friends and relatives. The same applies to small businesses, which turn to
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informal credit and savings setups to access credit. The trend was widely prevalent in the early
2000s with up to 75 percent of small businesses relying on nonbanking institutions as their credit
sources (Sparreboom and Duflos). Whereas such practices enabled the ‘unbanked’ to borrow
loans, they nevertheless made the borrowers susceptible to malicious enterprises and individuals,
which led to cases of lost savings and exposure to extremely high, interest rates.
Currently, there are two major typologies of P2P lending models in China, namely: (1)
direct and (2) indirect lending (Deer et al.). The indirect lending modeling features tranching and
pooling of funds. Lufax, a subsidiary of PingAn insurance—the largest insurance provider in the
country—is a good example of P2P provider that offers indirect lending services in addition to
direct lending (Deer et al.).
Online P2P platforms lag behind in terms of the size of the P2P firms that offer lending
services. Although companies, such as Dianrong, Jimubox, and PaiPaiDai already conduct their
P2P lending through online platforms, they are smaller than firms like CreditEase and
RenRenDai that work mostly offline (Deer et al.).
The public’s perception of P2P lending in China remains negative with a majority of
individuals considering it as just a form of shadow banking. In a recent case, for instance, local
governments came into focus after they used P2P lenders to circumvent restrictions that required
them to keep off credit offered by traditional banking institutions (Jingu). Although such
challenges are indicative of an immature P2P lending system, they nonetheless present a myriad
of opportunities for the individuals planning to establish P2P finance firms (Jingu).
2.5 THE LENDING PLAZA
The Lending Plaza founder launched the nascent P2P lender’s website in 2015. The firm wishes
to take advantage of the emerging opportunities in P2P lending in mainland China. However, to
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avoid the pitfalls that other companies experienced on in their early years, the Lending Plaza will
borrow best practices of P2P lending from notable firms, such as the UK’s Zopa.
Additionally, the Lending Plaza would mitigate the lack of a clear regulatory framework
governing Internet finance security in China by first hosting its servers in the U.S., which has a
comprehensive regulatory framework. Ultimately, the Lending Plaza plans to start conducting
business in mainland China by the end of 2016.

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CHAPTER 3: PROBLEM DEFINITION
Although P2P lending has become an important finance model in China, the CBRC—the
country’s banking regulator—branded up to 50 percent the existing P2P lending firms as
“problematic” (Shanghai Daily.com Agencies). Moreover, that is despite the fact that the
Chinese P2P lenders are collectively worth US$93 billion – hence indicating the amount of
money that is at risk if the regulator fails to institute workable oversight mechanisms (Shanghai
Daily.com Agencies). Some of the issues the CBRC cited in its review of the P2P lending sector
included the firms’ perpetuation of scandals and fraud cases, such as Ponzi schemes (Shanghai
Daily.com Agencies). As a result, the regulator introduced stringent guidelines in August 2016.
However, the new regulations are perceivably detrimental to the proposed entry of the Lending
Plaza into the Chinese P2P lending market.
3.1 STATEMENT OF THE PROBLEM
The recent efforts of the CBRC to regulate P2P lenders have essentially resulted in punitive
measures. Thus, it is highly likely that the regulator’s approach would stifle, rather than
encourage, the growth of the P2P finance sector (China Daily - USA).
The Lending Plaza’s CEO had timed the firm’s market entry to coincide with the
introduction of a better policy framework by the CBRC. The CEO had assumed that the CBRC’s
proposed measures would encourage competitive and ethical marketplace lending. However,
because the policies did not turn out as expected, the Lending Plaza must re-assess its prospects
to avoid making strategic decisions that are bound to fail.
For instance, the CBRC has instituted stricter rules, which effectively raise the threshold
for new entrants (China Daily - USA). Hence, newcomers can no longer take “public deposits or
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[sell] wealth-management products” (Shanghai Daily.com Agencies). A newcomer must also
employ and publicly declare a traditional bank as a custodian of its funds.
Hence, to thrive in the face of these developments, the Lending Plaza will examine the
strategies of established and successful P2P market lenders, such as Zopa. It will then use the
findings to work out how a newcomer can design a robust operational model.
3.2 CRITERIA FOR SUCCESS
In order for the Lending Plaza to succeed, it must:
(1) Offer rates of return to lenders that are better than those banks offer on deposits;
(2) Offer loan fees to borrowers that are lower than those traditional banks charge their
customers;
(3) Provide affordable loans to individuals (or enterprises) who struggle to get access to
credit from traditional banks;
(4) Create a brand perception associable with an ethical and responsible P2P lender; and
(5) Provide the technology-based innovation that would enhance the user experience,
such as a speedy and user-friendly online platform.
As the following sub-sections will show, several internal and external stakeholders will
contribute to the company’s success. In addition, the sub-sections will outline some of the
organizational, operational, and externally originating constraints the analysis will have to
contend with in its research.
3.3 DECISION MAKERS: INTERNAL, SENIOR-LEVEL STAKEHOLDERS
Four officers constitute the Lending Plaza’s decision-making function, namely:
(1) Executive Chairperson (and Co-Founder) – Provides the leadership for the Lending
Plaza. The Chairperson leads the company’s relations with its shareholders, internal
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stakeholders (such as employees), and external stakeholders (such as financial
institutions). The Chairperson also leads the deliberation of the company’s strategic
decisions.
(2) CEO and (Co-Founder) – The CEO oversees the formulation and execution of
Lending Plaza’s business strategies. The CEO also ensures that the company recruits
and retains the necessary personnel for senior management roles. Additionally, the
CEO is the senior spokesperson for the company as it engages with its stakeholders,
shareholders, and regulatory authorities.
(3) Chief Product Officer (CPO) – The CPO is responsible for the conception, design,
development, and maintenance of the Lending Plaza’s product portfolio. The CPO
reports to the CEO (see Figure 2).
(4) Chief Marketing Officer (CMO) – The CMO is in charge of the Lending Plaza’s
marketing and advertising initiatives. The CMO oversees the company’s product
pricing, marketing communications, and market research. The CMO also reports to
the CEO directly (see Figure 2).

Executive
Chairperson
Chief Executive
Officer (CEO)
Chief Product
Officer (CPO)
Chief
Marketing
Officer (CMO)
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Figure 2: The Lending Plaza’s decision-making hierarchy
3.4 EXTERNAL STAKEHOLDERS: AFFECTED OR RELATED PARTIES
The obvious external stakeholders of the Lending Plaza are its customers, which include the
borrowers and the lenders.
(1) Borrowers – These include individuals and businesses that wish to obtain unsecured
loans from the Lending Plaza. For example, individuals will obtain loans that range
between US$1,000 and US$30,000.
(2) Lenders – These customers wish to get competitive rates of return for the money that
they provide to the Lending Plaza to fund loans.
Other external stakeholders include:
(3) Custodian Bank(s) – These financial institutions manage the money that Lending
Plaza obtains from its customers.
(4) Retailers – These businesses market and sell the Lending Plaza products. They are
particularly effective in market segments where a specialized player would perform
better than the Lending Plaza. For instance, a given retailer could tailor its Lending
Plaza products for taxi drivers.
(5) Affiliates – These mainly includes online-based marketers who provide backlinks to
the Lending Plaza platform. They earn income through commissions depending on
the number of visitors whom they refer.
(6) Brokers – Unlike retailers, brokers do not modify the branding or marketing
initiatives of the Lending Plaza products. They sell the products on “as-it-is” basis.
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(7) Regulation Authorities – Government agencies, such as the CBRC, would determine
the legal limits within which the Lending Plaza would operate. They also provide the
permits and penalties, which would affect the company’s operations.
3.5 CONSTRAINTS ON THE PROBLEM-SOLVING
The case analyses require the collection of the pertinent research data on Zopa and the Chinese
P2P lending firms, such as CreditEase, RenRenDai, and PaiPaiDai. Whereas the data on Zopa is
verifiable and widely available, the data concerning the operations of the Chinese P2P market
lenders is either contentious or disparate.
The lack of comprehensive information on the Chinese P2P firms is partly due to the lack
of a clear regulatory framework, which persisted until the current institution of new measures by
the CBRC. However, the content analysis circumvented some of these constraints by using
amalgamated data from online P2P lending portals, such as Wangdaizhijia and YesMyLoan.
3.5.1 CHINESE P2P LENDING MARKET CONSTRAINTS
The content analyses required the latest data on the Chinese P2P lending firms in order to
generate a proper assessment of the Lending Plaza’s prospects in the current P2P lending
industry. However, the Chinese firms were experiencing a transition period as they worked to
fulfill the new measures from the CBRC. As a result, the assessments that the content analyses
would pass on to the Lending Plaza management were at risk of being inapplicable after the
conclusion of the research.
Some revelations also suggest that the existing data on Chinese P2P lending firms may be
inaccurate. For instance, the exposure of firms, such as Ezubao, as Ponzi schemes could mean
that the research’s data might not include findings on pure P2P lending firms alone (Shanghai
Daily.com Agencies).
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3.5.2 BUDGETARY AND TIME CONSTRAINTS
The collection and analysis of data on Zopa and the Chinese P2P lending firms is a costly
endeavor. Specialist market data, for instance, is expensive to obtain. Some of the online
businesses that provide comprehensive industry-specific reports charge up to thousands of (US)
dollars for their insights. As a result, the research had to rely on publicly available data, which
takes a considerable amount of time to collect and verify.
3.5.3 RESEARCH CONSTRAINTS
Because they are qualitative in nature, the content analysis had the potential of introducing
inaccurate or biased data. Furthermore, the interviews served as a primary research tool for the
study. That is despite the fact that interviews are also qualitative, and as a result, provide
subjective opinions, which further affects the quality of the data negatively. The research has to
include measures, which ensure data accuracy and representativeness, to remedy the related
quality shortcomings. However, such an overhead only serves to aggravate the research’s
budgetary and time constraints.

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CHAPTER 4: WHY IS P2P LENDING IMPORTANT? A LITERATURE REVIEW
The Internet has become an important vehicle for facilitating modern forms of communication,
information sharing, and socializing. It enabled users to develop peer-to-peer networks, which
forego the need for a central server to oversee their operations. One of the earliest
implementations of P2P networks were file sharing services, such as Napster. However, as the
global financial system experienced a crisis in 2008, Internet users increasingly relied on the
potential of P2P networks, causing a surge in the usage of P2P lending services, such as Zopa.
Moreover, contemporary P2P platforms are popular because of their disintermediation capability,
which allows borrowers to access credit sources easily (Moenninghoff and Wieandt).
Studies such as Fabian Gleisner’s, Online P2P Lending, have lauded the disruptive nature
of P2P lending, where “lenders bid for supplying a private loan” (Gleisner; Berger and
Gleisner). The operational model of Zopa confirms those claims since it encourages its lenders to
fund as many unsecured loans as possible, with as little as US$12 (Ashta and Djamchild Assadi).
In addition to increasing the possibilities for borrowers to obtain loans—and for lenders to find
suitable accounts to invest in—P2P platforms have also simplified the evaluation process for
loan applications (Gonzalez and McAleer). As a result, borrowers get loans in a time that is
shorter than the loan evaluation period that traditional banks require.
Marketplace lending investors also benefit from the simplified investment model that P2P
platforms offer (Guo et al.). For example, they have a small number of investment variables to
analyze before committing their funds to a particular loan application. Thus, they can exercise
their appetite for risk by basing their decisions on straightforward indicators, such as the
borrowers’ credit worthiness scores (Guo et al.). On the other hand, the P2P platforms benefit
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from charging both the lenders and the investors some administration fees for every successful
loan commitment between the lending parties.
Despite the novelty of the P2P lending approach, it has nevertheless informed a
considerable body of research. It has generated an increase in the socio-financial concepts of
disintermediation, social lending, online lending, asymmetric information sharing, and
microfinance (Gleisner; Ashta and Djamchid Assadi). Some of the recent studies on the
phenomenon focus on group social capital, credit risk evaluation, and P2P networks modeling
based on the supernetworks theory (Chen and Han; Emekter et al.; Han and Zhang). The
resurgent interest in the P2P lending model is attributable to the efforts of P2P lenders, such as
US’ Prosper, who release their data to the public to enhance their image as ethically responsible
institutions.
4.1 ASPECTS OF P2P LENDING
Unsecured loans are not new to the lending industry. They are particularly common in the
microfinance sector, where a borrower’s reputation acts as the major determinant of
creditworthiness (Chen et al.). However, studies report that small businesses are more likely to
obtain unsecured loans compared to individuals in a formal lending system (Mach et al.;
Galloway). Still, the common feature that makes peer-to-peer lending an attractive option for the
“unbanked” is that the model discourages the participation of a traditional financial institution as
an intermediary (Gross et al.).
Nevertheless, the ubiquity of the Internet has contributed to the broader adoption of
online-based P2P lending networks. Although they exhibit the characteristics of group social
lending, such as those inherent in loans between relatives and friends, they mitigate defaulting
through the use of technical evaluation tools like risk scoring (Karlan). Adverse selection is also
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an important concern for P2P lenders. For instance, Prosper.com argued that loan evaluation
should be a group activity to reduce the number of loan applications’ rejections based on
discriminating factors, such as sex and religion (Weiss et al.).
4.1.1 P2P LENDING TECHNIQUES
Findings from recent studies unanimously concur on the fact that the common attribute of online
P2P lenders is their provision for an interaction platform between lenders and borrowers
(Ruiqiong and Junwen; H. Wang et al.). However, some studies also highlight the possibility of
using a traditional bank as the main lending entity (Ruiqiong and Junwen). Still, the P2P lenders
differentiate their services based on how they determine the rates of return for the investors or
lenders (Mild et al.). Services, such as Zopa, set rates of return by classifying loan types
according to the size and amount of expected risk (Kupp and Anderson). However, there are
those like Prosper.com, who subject their lenders to a competitive bidding process, where the
lender asking for the lowest interest rates stands a high chance of attracting a borrower (Ceyhan
et al.).
Zopa’s use of a more comprehensive set of determinants to establish the rates of return
for its investors suggests the general direction that the P2P lending industry is likely to assume.
The platform relies on sophisticated analysis software to work out the amount of risk a borrower
would introduce to an investor’s funds. Factors, such as demographic attributes and financial
history contribute to the classification of a borrower. Subsequently, the investor gets a high
interest rate on his or her money if the platform finds a particular borrower to be high-risk (Kupp
and Anderson).
According to the P2P lending platforms, the onus is on the borrower to prove that he or
she has the ability to repay loans. As a result, the platforms run comprehensive background
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checks on their borrowers to determine their sources of income. For instance, Zopa requires a
borrower to verify his or her employment status before it can ultimately approve a funded loan
(Kupp and Anderson). If a borrower can meet all the conditions that Zopa sets, the platform
grants the loan request and directs the borrower to commence repayment based on a pre-
determined schedule. Consequently, the P2P lender generates revenues by charging the borrower
a service fee; and the investor, an administration fee (Kupp and Anderson).
4.1.2 RISKS OF P2P LENDING
Established in 2005, Zopa is the first known online marketplace lending platform (Hannam and
Cheng). By mid-2016, China recorded the highest transaction value in P2P lending. It reported
US$74.3 billion in transaction value. The next highest values were from the US and the UK,
which reported US$54.6 billion and US$2.5 billion respectively (Statista Market Forecast).
However, the statistics belie the amount of risks that P2P lenders and their stakeholders
have to contend with (Wei). In case an economy underperforms, for example, those borrowers
that are already servicing their loans are likely to default if they lose their jobs or sources of
income (Li et al.). On the other hand, only a few investors would be willing to fund loans if the
macroeconomic environment is unfavorable (Bottiglia). Hence, the resultant effect would be a
slowdown in the business that a P2P platform conducts.
Yet alone by facilitating borrowers to obtain unsecured loans, P2P lending platforms
create a risky and speculative financing model. Apart from the borrowers’ reputation and their
creditworthiness’ perceptions, there are no guarantees that borrowers would ultimately repay
their loans in full (Guo et al.). Moreover, lenders and investors risk their liquidity when they
commit themselves to fund loans. In essence, they do not have any access to those funds until the
borrowers settle their debts with the P2P lending platform (Guo et al.).
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On the other hand, novice or underfunded investors are susceptible to a skewed
investment model, which favors institutional and high-value investors (Serrano-Cinca et al.).
Similarly, borrowers must contend with automated evaluation systems, which are bound to favor
borrowers that have a long history of obtaining high-value loans and paying them back on time
(Serrano-Cinca et al.). In the case of P2P platforms—newcomers that do not have access to large
databases of individuals’ financial data, may struggle to satisfy the preconditions of algorithms
that calculate whether to award borrowers loans or not (Serrano-Cinca et al.).
4.1.3 INTERACTIONS BETWEEN P2P LENDERS AND EXTERNAL STAKEHOLDERS
Based on the concepts of the Stakeholder Theory, the borrowers, lenders, and regulation agencies
have an external perspective of the P2P lender’s organizational processes (Freeman and McVea).
According to the Stakeholder Theory, the P2P lender’s approach can affect the financial
prospects of its customers (see Figure 3)—that is, the borrowers and the investors (Rowley).
Recent research focuses on the relationships between the P2P lending firms and their
external stakeholders. A majority of these studies are limited to borrower-platform, borrower-
investor, and investor-platform topologies (Herzenstein et al.). Thus, future studies can fill the
resultant research gap by examining how the internal stakeholders of selected P2P lenders can
contribute to platforms’ strategic success.
4.1.3.1 Customers
A majority of recent studies on marketplace lending cite the disintermediation effect of online
P2P platforms as a crucial factor for borrowers and investors. However, that does not mean that
the “middleman” (that is, the P2P platform) does not participate in the lending process at all
(Avery). Still, the existing research puts a lower emphasis on how P2P platforms design
strategies to become profitable in their industries. Instead, the studies provide extensive
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arguments on factors affecting the qualification of borrowers to obtain loans, in addition to
concepts on how lenders earn interests on their investments (Lee and Lee; Chen et al.).

Figure 3: A stakeholder view of the P2P lender’s interconnected relationships
4.1.3.2 Regulation Agencies
Although regulators do not get as much attention as the customers do, in the relevant research
studies, the authorities are nonetheless important players in the marketplace lending industry
(Tan and De Silva). In addition to enforcing the necessary policy guidelines, regulators are
responsible for encouraging fair competition and ethical corporate responsibility. Some of the
agencies that studies evaluate include the U.S. Securities and Exchange Commission (SEC),
CBRC, and the FCA. Overall, there are a considerable number of studies examining how
Chinese P2P firms operate in an environment devoid of a robust policy framework.
External Perspective Internal Perspective
Management,
Employees, etc.
P2P Lending
Platform
Borrowers
Investors/Lenders
Regulation
Agencies
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4.2 LOAN EVALUATION CONSIDERATIONS
The role of friendship networks plays a significant role in determining whether individual
borrowers can obtain loans from other individual lenders (Lin et al.). In essence, networks based
on online friendships are likely to increase the transaction value of credit that borrowers and
lenders commit themselves to (Lin et al.). On the other hand, studies argue that P2P lending
platforms, such as Prosper.com, subject their customers to adverse selection because they do not
use credit scores to rate borrowers—but instead rely on credit grades (Freedman and Jin).
Still, information asymmetry is the greatest weakness of P2P lending platforms. It
facilitates lenders to access the necessary data for evaluating applicants while barring borrowers
from learning more about the personal attributes of the lenders (J. Xu et al.). P2P lenders
outsource the collection of their borrowers’ demographic data. Nevertheless, recent research
faults the practice due to its tendency to create a subjective decision support system that
contributes to adverse selection (Wu and Xu).
4.2.1 FINANCIAL-BASED CREDITWORTHINESS
A study on the Czech P2P lending market found that a borrower’s creditworthiness is crucial to
loan evaluations because it balances out asymmetric information sharing between the involved
parties (Pokorná and Sponer). Yet one of the reasons that makes P2P lending popular among
borrowers, is its promise to provide credit facilities to those who have poor ratings on the
traditional credit scoring systems (Dhand et al.). Hence, from the onset, it is apparent that online
social lending tends to replicate the loan evaluation approach of traditional banks, which locks
out a significant segment of the “unbanked” (Johnston and Morduch).
In developed economies, such as the UK, P2P lenders obtain the credit scoring data from
credit bureaus. These facilities use “formal statistical methods used for classifying applicants for
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credit into ‘good’ and ‘bad’ risk classes” (Hand and Henley 523). However, credit bureaus
extract their consumer data from varying sources. Hence, studies have concluded that the P2P
platforms do not have a consistent method of determining creditworthiness because of the
disparity in the credit scores that they base their ratings on (van Gool, Verbeke, et al.; Schreiner).
Pertinent research classifies methods of determining creditworthiness into three broad
groups, namely: “[1] judgmental, [2] statistical and [3] non-statistical, non judgmental” (van
Gool, Baesens, et al. 2). However, the research does not find evidence to show which of the three
approaches is the most effective for grading borrowers in microfinance applications (van Gool,
Baesens, et al.). As a result, P2P platforms tend to employ a particular credit scoring method
based on its history of acceptability, rather than on pre-considerations of its suitability to credit
scoring requirements.
4.2.2 DEMOGRAPHICAL ATTRIBUTES
Earlier studies on P2P lending established social reality as an outcome of social construction
(Rose et al.). Systems that rely on social perceptions are therefore vulnerable to negative aspects
of social construction, such as gender- and racial-based discrimination. Similarly, communities
collaborate to form peer-to-peer lending networks, which may be subject to exclusionary tactics
based on demographical attributes (Ashta and Djamchild Assadi). Attributes, such as sex, race,
age, and religion can all subconsciously form the basis of an individual’s assessment before he or
she can access credit facilities (Y. Xu et al.).
Studies cite examples that show how demographical attributes influence marketplace
lending. In the US mortgage lending market, for instance, race and gender inform, “sophisticated
predatory practices in which certain groups of borrowers are targeted for high-cost credit that …
worsens the risks of … default” (Wyly et al. 2139). Other findings have however blamed the
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pervasiveness of subjective loan evaluations on “suboptimal lending decisions, minimal learning,
and herding behavior in the [peer-to-peer lending] network[s]” (Krumme and Herrero 613).
Nonetheless, lenders are more likely to fund a particular loan if the applicant’s profile contains a
positive repayment history. Recent studies use that perspective to exonerate demographical
attributes from being the major influencing factor in lending decisions. Instead, they put more
emphasis on information asymmetry to explain why P2P platform users tend to make biased
decisions (Duarte et al.; Zhang et al.).
Apart from ethnicity, gender and age of the borrower might also have an effect on a
loan’s approval and its associated interest rate. However, the effect of gender on P2P lending
does not “does not matter for investors’ risk preferences,” according to research on German P2P
credit markets (Barasinska 17). On the other hand, lending decisions vary depending on the
trustworthiness that a borrower’s profile photo shows; rather than on the age the borrower reports
(Duarte et al.).
4.2.3 SOFT FACTORS AND SOCIAL DEFAULTS
While demographical attributes, such as ethnicity, sex, and age may have a subtle effect on how
a lender evaluates a loan application; soft social factors like trustworthiness could have a
considerable impact depending on the type of P2P lending platform (Larrimore et al.). Moreover,
soft factors could be responsible for enhancing a borrower’s reputation, which through herding
behavior could cause a spike in interest in a particular borrower’s profile (Larrimore et al.). On
the other hand, the research provides evidence to confirm that, “lenders use private, soft
information to extract monopoly economic rents in the form of higher interest rates” (Everett 2).
Yet due to their social nature, P2P lending platforms are essentially spaces where
individuals make decisions in the presence of other users (Huh et al. 746). Because of that, social
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defaults come into play and cause lenders, for instance, to make decisions with minimal learning
(Krumme and Herrero). The phenomenon is more evident in P2P lending networks where the
users have no previous acquaintances than in those where the users are “friends” (Lin et al.).
Figures show that seven percent of loans in P2P lending end up in defaults and that up to 30
percent of P2P loans are susceptible to delinquent repayment patterns (Lu et al.). Thus, it very
likely that lenders may also rely on other factors, such as social defaults, to inform their lending
decisions—given the high inherent risk of funding loans.
Unlike in classic economic theory, users of P2P lending platforms rely on their social
connections to conduct transactions (Dufhues et al.). The growing body of evidence regarding
this matter mainly cites the setup in Propser.com, which allows users to form group connections,
in addition to personal connections. The shared meaning that these groups carry gives the
members the necessary social capital to prove their credit worthiness to potential lenders.
Similarly, because an individual’s profile on a P2P platform displays the existing connections the
user maintains; it could provide the social capital necessary to assure other investors who share
interests with the individual’s prior lenders (Herrero-Lopez).
4.3 FRAMEWORK FOR PROBLEM-SOLVING
The literature provides the evidence to show that P2P loans are a risky undertaking, especially
for lenders. One of the ways that lenders use to overcome the risk aspect is through subliminal
review of the borrower’s social capital. On the other hand, the P2P platforms provide credit
scores and grades, which give the lenders an extra tool to assist them in the decision-making
process. Additionally, regulatory authorities have the responsibility of ensuring that P2P
platforms institute the proper security mechanisms to protect their users’ money.
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The Lending Plaza could therefore, generate a tentative strategic framework through
these concepts. The company’s aim of establishing a platform in mainland China could benefit
from techniques, such as:
(1) Providing a comprehensive credit scoring mechanism, and;
(2) Installing an interactive platform where users can tap into social cues to help them
in lending decisions.

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CHAPTER 5: BUSINESS MODELS OF P2P LENDING FIRMS
The primary business objective of P2P lending firms is to provide an alternative route for
borrowers to obtain unsecured loans and to offer a simple investment model for lenders. The
business models of P2P lending companies are, therefore, a simplified version of the approach to
traditional banking. Similar to banks, P2P lending companies, act as intermediaries between loan
lenders and borrowers. However, the firms are ideal channels for providing consumer loans
because they do not interfere with the investors’ lending decisions.
This is unlike traditional banking, for instance, where the intermediating bank screens out
the direct connection between the investors (or savers) and the borrowers. In traditional banking,
the investors/savers deposit their money with a bank, which then incorporates it into its financial
balance sheet. Additionally, the bank could show the deposits as part of its capital reserves. The
bank would then offer out loans to borrowers from the shared pool of the savers’ deposits.
Unlike bank savings, investors in P2P lending offer their money to the P2P platform
directly with the intention of loaning it out to qualified borrowers. Existing P2P platforms even
facilitate the direct communication between lenders and their potential borrowers. As a result,
the borrowers have an opportunity to campaign for their loan applications through novel ways,
such as personal narratives.
The resultant model is, therefore, simpler and speedier compared to the traditional
banking model. However, since a majority of P2P lending firms focus on providing unsecured
loans, they expose their investors to risky transactions. This is in contrast to banking where the
institution attains guarantees from the borrower on whether he or she has the ability to repay the
approved loans.
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5.1 OPERATIONAL TRANSPARENCY
Zopa—and the UK P2P lending industry in general—provides an excellent case study of how
P2P platforms should operate in transparency. The company makes public all the loans that
borrowers have failed to repay in full and those that are displaying attributes of delinquency. The
practice is also common in US P2P lending firms, such as Prosper.com, which releases its usage
data and forecasts. In cases where borrowers default on their loans, the US and the UK P2P
platforms assume the responsibility of refunding their lenders the unpaid loans (Ashta and
Djamchild Assadi).
On the other hand, these P2P platforms facilitate their lenders to scrutinize the credit
ratings or credit grades of their borrowers, which further contributes to the operational
transparency of the platforms (Ashta and Djamchild Assadi). Although the openness concerning
credit worthiness is a useful aid to lending decisions, it still does not protect the platform users
from macroeconomic risks, such as poorly performing economies.
P2P lending companies attract investors by giving them the platform to trade their loans
(Bottiglia). Furthermore, they make this provision transparent to all parties. However, such
transparency encourages speculative investors to destabilize the liquidity of the P2P platform
because it allows them to drive down the interest rates on offer. Similarly, such a provision gives
institutional investors the room to transfer large portfolios among themselves (Emekter et al.).
Whereas small individual loans can change hands between investors without a considerable
impact on the platform’s liquidity, large loans create logistical challenges, which may require the
input of traditional financial institutions.
In cases where a P2P lending platform experiences a high turnover of loan sales between
investors, the platform could be susceptible to a reduction in available liquidity, which causes an
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increase in the lending rates. Thus, P2P platforms should monitor how its investors fund the
available loan applications to prevent locking out new loan requests. Moreover, the number of
borrowers in P2P lending platforms is usually higher than the number of investors (Han and
Zhang). Thus, borrowers are more likely to agree to low-interest rate offers, since they are in stiff
competition with each other.
Still, the aspect of transparency is not evident in the manner P2P platforms handle their
loan recovery in cases of default (Guo et al.). The platforms usually advertise the stringent credit
scoring systems they use to screen borrowers. However, they do not report the measures they
employ when delinquent borrowers fail to repay their loans according to the agreed terms. As a
result, the platforms force their investors to use other subliminal assessment techniques, such as
social defaults and social capital to decide whether they can afford to lend out loans. In the
aspect of loan recovery, therefore, P2P lending platforms lag behind the traditional banks, who
report on bad loans and loan recovery efforts.
Thus, to increase the number of investors who would be willing to fund unsecured loans,
P2P lending platforms end up admitting individual borrowers who have proof of formal
employment or a verifiable source of income (Hand and Henley). However, the practice goes
against the tenets of person-to-person lending, which aims to reduce the number of individuals
who do not have access to traditional banking systems. Future advancements in P2P lending
must therefore, create loan recovery systems that are both transparent to the investors and the
borrowers.
5.2 DISINTERMEDIATION OF BANKING
Products from P2P lending firms are more attractive than traditional banking because they
provide a disintermediation effect (Wei). They simplify the financial channel between the
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borrower and lender. However, the term peer-to-peer is a misnomer because existing P2P
lending platforms do not provide a one-to-one connection between their borrowers and their
lenders (Mateescu). In the case of Zopa, for example, several lenders can contribute to the
funding of a single loan. Moreover, the evaluation of a loan application is not dependent on the
efforts of the borrower alone. The P2P lending platform furnishes the lenders with credit scoring
data, which informs their lending decisions. Hence, in contrast to other peer-to-peer networks,
such as file sharing networks—where no mediating agent exists, marketplace lending features a
platform that acts as the intermediary.
Although the P2P lending firms’ banking disintermediation could attract borrowers who
cannot obtain loans from traditional banks, it creates a risky environment for lenders. In the UK,
for instance, government compensation schemes do not cover deposits that marketplace-lending
firms manage (Mach et al.). As a result, the P2P lending companies have a difficult time
convincing risk-averse investors to fund their borrowers’ loans. The companies attempt to
remedy the lack of investors, and hence enhance their liquidity, by offering higher rates of return
to interested investors (Meyer). However, because of the novelty of the approach, participating
or newcomer lenders turn to the techniques of assessing trust in social networks, which are likely
to perpetuate adverse selection. Ultimately, the innovative techniques of P2P lending platforms
end up creating closed group connections, where new borrowers struggle to attract funding.
Nonetheless, the disintermediation ability of P2P lending firms in regions where banks
fail to address the credit needs of every individual is of paramount importance. In China, for
example, the traditional banks give priority to funding state-sanctioned projects. In addition, they
commit a significant amount of their capital according to the guidelines the financial authorities
dictate. The result is that a large section of the population cannot access the loans from
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traditional banks since they have high determinant thresholds (Peng et al.). In such an
environment, P2P lending firms could be a source of cheap credit to informal sector workers or
borrowers looking for low-value consumer loans. Then again, by replacing traditional banks as
the intermediary, the P2P loan firms could create a simpler framework for lending, which is
devoid of the bureaucratic inefficiencies of the Chinese financial authorities (Sparreboom and
Duflos).
Disintermediation of banking also mitigates the challenges of information asymmetry that
traditional banks face when evaluating loans applications from many, unsecured, small-scale
borrowers (Deer et al.). Because traditional banks expend significant amounts of resources when
analyzing applications from consumer borrowers, they are highly likely to discard the
applications rather than incur the associated expenses. However, existing P2P lending firms such
as Propser.com illustrate how disintermediation tackles the information asymmetry. Prosper.com
offers a provision where individual borrowers can join groups and apply for funding of their
combined loans. That way, the lender can rely on the social capital of the group rather than on
the unverifiable trustworthiness of the individual borrowers. On the other hand, P2P lending
firms can verify the creditworthiness of individual borrowers by analyzing their data from third-
party agents. In China, for instance, P2P lenders analyze borrowers’ financial history by
checking their trading behavior patterns in e-commerce platforms like Taobao (Deer et al.).

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CHAPTER 6: RESEARCH METHOD
According to Robey et al., an effective research methodology should first “guide researchers in
relevant theoretical directions” (498). Accordingly, this study collected, reviewed, and
summarized the relevant studies in peer-to-peer finance in developed economies, such as the UK,
and in the emerging economies of Asia—with an emphasis on China.
In addition to addressing the theoretical foundations, the literature provided an overview
of the empirical data related to P2P lending. However, that alone was not sufficient to advise the
research on issues facing contemporary P2P lending in the selected markets. As a result, the
study employed a qualitative analysis of data from interviews; and a content analysis of texts
from P2P lending portals, such as P2P-Banking and Wangdaizhijia.com.
The study also used variations of both case study and grounded theory research methods.
In its grounded theory approach, for instance, it relied on a set of theoretical concepts and the
literature review in a cyclic process. On the other hand, in its case study analyses, the study
featured a comprehensive examination of the UK and Chinese P2P lending markets using
multiple evidence sources.
6.1 CASE STUDIES AND CONTENT ANALYSIS APPROACH
There is a considerable body of emerging research examining the P2P lending market. The
sources of evidence tackling the UK market are more numerous compared to those that explore
P2P finance in China. The study could afford to focus on one P2P lending platform, that is,
Zopa, to review the UK peer-to-peer lending industry. That is because Zopa is a mature lending
platform, and as a result, there are multiple and credible sources that the study could use for
reference. On the other hand, the study had to review the case studies of multiple P2P lending
platforms from China. Because the Chinese P2P lending platforms feature significant differences
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in operational models and interpretations of peer-to-peer lending, the study could not focus on
one platform alone to deduce the standard approach of P2P lending in China. For instance,
whereas Zopa mirrors the prevalent finance model of marketplace lending in the UK, where the
platforms conduct their business online; there is a mixture of both online and offline models in
the Chinese P2P lending market.
Nonetheless, the research observed a crucial tenet of conducting successful case studies,
which requires, “undertaking a detailed analysis of a particular case and its setting” (Daymon
and Holloway 106). It analyzed how Zopa connects borrowers to lenders in the UK marketplace
lending setting. In addition, it examined how the Chinese P2P lending platforms have evolved
into notable players in the global P2P lending scene. To achieve this, it reviewed and
summarized findings from reports and data by the FCA or portals, such as P2P-Banking and
Wangdaizhijia.com. Similarly, industry publications by organizations, such as Deloitte and the
Association of Chartered Certified Accountants (ACCA), provided the case details of both the
UK and the Chinese P2P lending markets. However, the reports on the Chinese P2P lenders
amalgamated findings from up to five platforms; compared to literature on UK’s marketplace
lending, which focused on at most two players—if not on Zopa alone.
Compelling case studies are distinguishable by the ability of “noting the many different
influences on and aspects of communication relationships and experiences” (Daymon and
Holloway 106). Thus, the study concentrated on how the borrowers, lenders, and the platform
personnel interacted (and how other factors, such as social capital) affected their success. The
research also focused on examining whether the disintermediation effect of P2P platforms
generated a more efficient communication and operational model for the stakeholders. In
essence, the study aimed to draw “attention to how those factors relate to each other” (Daymon
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and Holloway 106). It relied on industry data, which indicated the growth trends of P2P lending
in both the UK and Chinese markets in comparison to traditional banking data, in the aspects of
consumer and small business financing.
6.2 GROUND THEORY APPROACH
According to Daymon and Holloway, the grounded theory approach is “where data collection,
analysis, the development of theoretical concepts, and the literature review occur in a cyclical
process” (117). Accordingly, the study reviewed the related concepts of credit networks while
concurrently examining how the UK and the Chinese P2P lending markets applied those
theories. For instance, the study explored how the Chinese P2P platforms mitigate the effect of
information asymmetry that the traditional Chinese banks experience when financing loans (Deer
et al.).
Furthermore, the study aimed to extract the data from the Zopa loan book to test the
theory, which surmises that loan interests are bound to increase in marketplace lending because
of the credit risks associated with the model’s unsecured loans. Ultimately, the evidence sources
the study needed to examine its themes contained sufficient data. As a result, the study was able
to fulfill the precept of grounded theory research, which prescribes: “products of research are
shaped from the data rather than from any preconceived … hypotheses” (Daymon and Holloway
118).
As an analytical study, the research was more interested in extending or modifying the
existing theories on social lending than on introducing new ones. It thus employed a processual
approach, where it focused on examining the sequence of events relating to the development of
P2P lending in the UK and China. That way, the study could manage to offer new insights into
how entrepreneurs can establish sophisticated and secure P2P lending platforms. The use of a
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grounded theory approach was also in cognizance of the fact that the study was focusing on an
area of study that generates “consumer- or employee-based theories and constructs” (Daymon
and Holloway 118). For instance, using grounded theory, the expected research conclusions
could apply to how P2P lending platforms manage their personnel in order to fulfill the
expectations of the borrowers and the investors (or lenders).
The study first collected and reviewed the relevant data relating to P2P lending in the UK
and China, to execute the grounded theory approach in its examination of evidence sources. In
the UK section of its research, the study was partial to sources that provided data on Zopa.
Likewise, it favored the sources that provided the data on the large P2P lending firms in China.
Next, the study used the theoretical concepts that the pertinent literature provided in order to
analyze and generate reflexive conclusions from the collected data. As a result, the research
could make informed contrasts and comparisons between the UK and the Chinese approaches to
P2P lending. Subsequently, the study’s approach afforded it the opportunity to make and
reformulate concepts as the data collection and analyses progressed.
6.3 DATA
In recent years, the global P2P lending industry has experienced substantial advancement and
growth. However, the study focused on only a few selected P2P platforms based on their
creditworthiness, good management practice, and transparency. The study’s research data, was
therefore, concerned with the chosen platforms’ lending history and loan issuance metrics to
gauge how well those platforms perform in their respective markets.
The study examined up to five P2P lending platforms in both the UK and China. In
China, for instance, the research concentrated on platforms, such as Lufax, RenRenDai,
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Hongling Capital, and CreditEase (especially the subsidiary—Yirendai). In the UK, the platform
of interest was Zopa.
To compare the P2P lending platforms, the study based its analyses on factors such as:
(1) Lending history;
(2) Loan data;
(3) Investors’ data;
(4) Financial performance; and
(5) Transparency
Other considerations, such as the platforms’ business model also informed the study’s
analyses. The models provided further insights because they indicated how the platforms interact
with their banking sector regulators and the third-party trustees. On the other hand, the data
illustrated how the platforms instituted measures to protect their investors against loan defaults.
For instance, the data showed how the Chinese P2P lending platform, Lufax, provided up to 30
percent of its loans backed by the security of Chinese insurance companies.
6.4 LIMITATIONS AND PROBLEMS
The biggest problem the study faced while conducting its case studies and content analyses was
defining the boundaries within which to limit the scope of the research. For instance, since there
is a considerable body of evidence relating to the UK and Chinese P2P lending platforms, the
study found it difficult to decide what sources and aspects of evidence to include in the analyses.
Moreover, the study relied on publicly available data, which posed the risk of introducing
partiality and inaccuracy into the analyses. On the other hand, because the P2P platforms are
private competitive entities, they were unwilling to provide full access to their data as that would
precipitate the leakage of their confidential data to their competitors.
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For the case studies, the study risked generating overly descriptive assertions. Although
the factor assisted in providing insights into how the P2P lending platforms operate and how they
apply particular theoretical concepts, it nonetheless reduced the ability of the research to create
generalizations.
Although the study used the grounded theory approach, it contended with the intricate
nature of the strategy, making it susceptible to its application in “a loose, non-rigid, non-
specifiable fashion” (Partington 95). The inherent difficulties in executing the grounded theory
strategy forced the research to institute a simplified form of the approach. For example, instead
of generating new conceptual frameworks in tandem with the data analyses—as the method
advises, the study developed a theoretical framework prior to collecting data. Hence, the study
overlooked the comprehensive application of the grounded theory approach but still managed to
make conclusions that are valuable to public relations knowledge.

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CHAPTER 7: FINDINGS AND ANALYSIS
Zopa was the first platform to implement a peer-to-peer lending paradigm with considerable
success. It inspired the establishment of similar lending platforms in the U.S., such as the
Lending Club and Prosper Market Place, and then in China. However, the Chinese P2P lending
platforms have managed to outpace both the UK and US platforms in terms of the loan value.
From 2005, the world’s leading P2P lending firms have facilitated the funding of consumer and
small business loans, thus displaying their potential for disruption and disintermediation of
traditional banking.
The founding narratives of the majority of the Chinese P2P platforms are similar to that
of Zopa, which was founded with the aim of providing easier access to credit sources to a market
segment that conventionally struggles to secure loans because of its risky credit rating. Thus, the
lending platforms are popular among individuals who do not have formal employment, such as
freelancers, and entrepreneurs running small- to mid-sized businesses.
This study focused on the operational models and performance of Zopa and four Chinese
P2P lending platforms; that are Yirendai, RenRenDai, Lufax, and Hongling Capital. It especially
took a keen interest in the efforts of the Zopa founders because it illustrates how a novel business
model could enable individuals and entities to access unsecured loans and circumvent the
stringency of traditional credit network systems (J. G. Wang et al.).
Thus, this chapter features a report of findings, which informed the comparative analysis
of the P2P lending platforms in the UK and China as mentioned earlier. The results cover aspects
of the borrowers’ profiles, the platforms’ history of returns, and the technological underpinnings,
among others. In addition to analyzing the recorded interviews of various stakeholders, the data
also includes the sentiments of a Professor from the University of Southern California regarding
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how a public relations approach can salvage the P2P lending model in the midst of recent
regulatory developments in mainland China.
7.1 ANALYSIS OF ZOPA
The American public policy dispute resolution researcher, Brad Spangler, first described the
business negotiation and bargaining concept: Zone of Possible Agreement (ZOPA), as “a
potential agreement that would benefit both sides more than their alternative options do”
(Spangler, para.1). Similarly, the Zopa, the UK P2P lending firm applies the principle to connect
borrowers who do not wish to undergo the lending systems of traditional credit systems, such as
banks to affordable funding sources. Besides, the platform also enables lenders to earn higher
rates of return on their investments in unsecured loans; than they would through the deposits
approach (Ruiqiong and Junwen).
To illustrate the success of the peer-to-peer lending approach, Zopa publishes its loan
book data for unrestricted public access. Thus using the data, this study managed to extract the
insights necessary to inform its analysis of the lending firm’s performance, loan returns, and
related liquidity indicators.
7.1.1 BORROWER TYPES
Zopa classifies its borrowers according to the “associated level of risk” (Zopa, Risk Markets). To
qualify as a borrower on the platform, an individual must fulfill the following:
(1) Be no younger than 20 years old;
(2) Be a UK citizen;
(3) Have a verifiable annual income of more than US$14,800; and
(4) Prove that he or she can afford to repay the loan according to existing financial
commitments and the income (Zopa, Risk Markets).
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The company then categorizes eligible borrowers into six groups, as Table 2 shows.
Table 2: Zopa’s typical borrower profiling
A* A B C D E
Average income Highest Higher High Low Lower Lowest
Typical borrowing
purpose
Cars Home
improvements
Home
improvements/debt
consolidation
Debt
consolidation
Debt consolidation/other Other
Projected annual
default rate
0 – 1% 0.5 – 2.5% 2.5 – 4% 4.5 – 6.5% 9 – 11% 10 – 12%
Expected annual net
return
2 – 4% 2 – 5.5% 4 – 6% 5 – 7% 7 – 9% 10 – 14%
Summary
A* – A repay their debts on time
and have never missed a
payment. They have a well-
established credit history and
their debt-to-income ratio is low.
D – E have a similar debt-to-income
ratio as the B and C market, with their
income typically around the UK
average. D and E market borrowers
may also be people with limited credit
history.
1

7.1.2 INVESTING WITH ZOPA
The lending platform offers its investors three types of lending options: (1) Zopa Access;
(2) Zopa Classic, and; (3) Zopa Plus. The company protects its investors against non-performing
loans (NPLs) or defaults through the Safeguard provision – a backup fund (Zopa, Risk
Performance). However, only two out of the three lending options feature the Safeguard
provision; that is, Zopa Access and Zopa Classic. Safeguard is, however, a quasi-guarantee by
the company that it will pay back an investor in case of a default. In its website, the company
declares:
Safeguard is not a guarantee on your investment. To date, all claims on Safeguard
have been paid; but there’s no guarantee this will always be the case (Zopa,
Safeguard, emphasis added).
In essence, the company pegs the rates of return it offers investors to the defaults’ rate. If
the defaults increase, for instance, Zopa decreases the interest rates available on its lending
options (see Figure 4).

1
Source: https://www.zopa.com/lending/risk-markets
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Figure 4: Zopa’s responses to NPLs and defaults
2

7.1.3 INVESTMENT PRODUCTS
On average, Zopa offers its investors a higher rate of return for their money compared to
traditional bank deposits. It affords the high rates because it does not experience the overheads
associated with conventional banks, which include running costs and the substantial capital
investments related to traditional banking. However, the compensation authority, FSCS, does not
insure against deposits made with Zopa; thus exposing investors funds to unprecedented risk
(Zopa, Rates for P2P Lending).
Nonetheless, unlike traditional banks, Zopa offers two major advantages to its investors,
namely:

2
Source: https://www.zopa.com/lending/safeguard
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(1) Direct lending: the investor enters into a direct contract with his or her borrower(s)
for the duration of the loan repayment period. Moreover, the parties enjoy a fixed
loan rate, which does not change during the repayment period.
(2) Simpler taxing declaration: the investor uses the company’s annual statement to
declare his or her taxable income from the loan’s interest rates to the tax authority—
the HMRC (Her Majesty’s Revenue and Customs).
Zopa’s three lending options address a sizable spectrum of investors risk appetites (see
Table 3).
Table 3: Zopa’s investment products
Zopa Access Zopa Classic Zopa Plus
Loan selling fee 0% 1% 1%
Minimum investment US$12 US$12 US$1234
Eligible borrowers A* – C A* – C A* – E
Salient features Designed for the investor
wishing to withdraw their
investments occasionally
Designed for the
investor willing to
invest long-term
Designed for the investor
with an appetite for high-risk
investments and higher-rate
returns
3

7.1.3.1 Calculating Rates of Return
Zopa calculates the rates of return for its investors as a Net Annualized Return (𝑁𝐴𝑅 𝑍𝑜𝑝𝑎 ). It is a
measure of the rate of return (𝑅𝑂𝐼 ) on the amount the investor lends to a particular loan (Zopa,
Returns Performance). The company calculates the 𝑁𝐴𝑅 𝑍𝑜𝑝𝑎 (see equation (1)) as, “actual
interest received by lenders each month from borrower repayments after fees” (Zopa, Returns
Performance).
𝑁𝐴𝑅 𝑍𝑜𝑝𝑎 =
∑ 𝐼 𝑡 − 𝑆 𝑓𝑒𝑒 − 𝑃 𝑙 𝐿 0
𝐿 𝑛 ∑
𝐼 𝑡 𝑟 𝐿 0
𝐿 𝑛 (1)

3
Source: https://www.zopa.com/lending/rates
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7.1.3.2 Historical Rates of Return
Using the calculation approach in equation (1), Zopa reports the rates of return it offered its
investors between 2011 and 2016, as shown in Table 4.
Table 4: Zopa’s historical rates of return (2011 – 2016)
2011 2012 2013 2014 2015 2016
Amount lent by retail investors (US$
millions)
70.85 107.13 223.61 299.75 330.01 404.79
Actual annual return to date of loans in
origination year (after fees and bad debts)
5.9% 5.7% 4.8% 4.6% 4.9% 5.6%
Estimated annual return (capital weighted
average loan interest rate minus expected
principal loss and any fees) at origination
5.2% 5.2% 4.5% 4.4% 4.8% 5.1%
Realized percent (principal repaid
excluding bad debts)
100% 98% 91% 73% 46% 13%
Actual annual investor return to date
(after fees and bad debt fund
compensation)
5.9% 5.7% 4.8% 4.6% 4.9% 5.6%
Bad debt fund usage (bad debts in year as
a percentage of funds raised in year)
N/A N/A 62% 73% 53% 14%
4

7.2 ANALYSIS OF CHINESE PLATFORMS
The development of the Chinese P2P lending platforms mirrored the pace that Zopa and its US
peers set after 2005. Within two years of the commencement of Zopa’s operations, for instance,
PaiPaiDai started its peer-to-peer finance online business in China. PaiPaiDai led the Chinese
lending market, with RenRenDai, Lufax, and Hongling Capital starting operations shortly after
that. It is only after 2012, however, did the Chinese P2P lending industry start reporting
substantial loan volumes to warrant the attention of the global P2P lending industry.
The major Chinese platforms displayed positive growth in pertinent indicators of
investors and borrowers numbers, loan performance and liquidity. However, issues such as
platform transparency, fraud, and unethical business practices became a stubborn feature of the

4
Source: https://www.zopa.com/lending/returns-performance
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Chinese alternative lending industry leading to efforts by the finance regulator (the CBRC) to
propose new, tougher measures (Shanghai Daily.com Agencies).
Although the major P2P lending platforms in mainland China generate the bulk of their
revenue from the service fees they charge their borrowers and lenders to facilitate the lending
process, they also conduct other activities, such as wealth management and information
provision. Before CBRC interventions, which promise to provide comprehensive data on the
industry, the platforms operated in an environment of secrecy making it difficult for analysts to
report on their activities accurately.
The regulatory vacuum, thus allowed the P2P lending platforms to function as
information selling agencies and finance speculation vehicles (China Daily - USA). Other legal
and ethical concerns include the platforms’ practice of pooling their funds from the public,
unlike in the Zopa case, where the company solicits for funding sources from registered retail
and institutional investors (Ashta and Djamchid Assadi).
Questionable financial reporting policies make it difficult to evaluate whether the
Chinese P2P lending platforms instituted sound business models before the institution of the
CBRC regulatory policies. The platforms, for instance, did not observe a standard approach for
revenue and expenses disclosure and outlining the disbursement procedure for loans. Thus, it is
highly likely that the financial data that the platforms released to the public contained aspects of
interest spread branded as revenue sources. In addition, the platforms did not usually report the
extent of costs bad debts caused on their margins.
As a result, the Chinese P2P lending platforms attracted unprecedented interest from
investors, as they seemed to enjoy healthy gross margins in excess of 25 percent in particular
cases. It is, therefore, common for the Chinese platforms to associate with investors that range
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from venture capitalists, local governments, to even traditional banking institutions (Shanghai
Daily.com Agencies).
7.2.1 INVESTORS DATA
According to the Chinese P2P lending portal, Wangdaizhijia.com, there were approximately
51,000 investors in 2012. In two years time, the figure ballooned to exceed 1.2 million
investors—a 23-fold increase. However, Wangdaizhijia might be prone to multiple counting of
the investors, which means that the actual number of investors by the end of 2014 could be no
more than 500,000 (Goué).
Expectedly, there was also a comparable increase in the loan transaction value between
2012 and 2014. Wangdaizhijia reported a total of US$55 billion transacted through the P2P
lending platforms in China. Of interest, however, is that the P2P lending platforms transacted
US$37 billion in 2014 alone, marking an increase of 1200 percent compared to the data from
2012 (Goué). There was also an increase in the number of small-scale investors participating in
P2P lending between 2012 and 2014. According to Wangdaizhijia.com, the total lenders’
investment per capita was US$59,000, US$60,000, and US$31,300 in the years 2012, 2013, and
2014 respectively (Goué).
In terms of demographics, 85 percent of the P2P lenders were male, while 15 percent
were female by the end of 2014. Thus, the trend suggests that there is an opportunity for new
P2P platform entrants to exploit the ratio disparity between in gender by attracting more female
lenders. On the other hand, data from Wangdaizhijia.com showed that the majority (that is, up to
80.6 percent) of the investors were young adults, aged between 20 to 40 years (see Table 5).
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Table 5: The investors’ age structure in Chinese P2P platforms
Age bracket (years) Distribution
19 and below 1.3%
20 – 29 40.5%
30 – 39 40.1%
50 and above 3.3%

Data from Wangdaizhijia.com also indicates that regions, which have a high economic
output, are more likely to have a larger number of individuals investing in P2P lending platforms
compared to the less economically developed regions. The regions of Zhejiang and Guangdong,
for instance, feature the largest number of people investing in peer-to-peer finance, with a
combined 29 percent out of the total number of investor concentrations. On the other hand, poor
regions, such as Qinghai, Xinjiang, and Inner Mongolia do not report having any P2P lending
investors.
7.2.2 BORROWERS DATA
The number of borrowers participating in peer-to-peer finance confirms that P2P lending is
experiencing exponential growth in China. By 2014 alone, for example, more than 600,000
consumer and business borrowers secured loans through the P2P platforms. This was a
substantial increase from the previous years where only 140,000 and 17,500 borrowers obtained
loans in 2013 and 2012 respectively (Goué). By the end of 2014, the transaction value per capita
of borrowed loans was more than US$58,000 (see Table 6).
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Table 6: Loan values of selected Chinese P2P lending firms (2012 – 2014)
P2P Platform Loan value (US$
millions)
Number of
borrowers
Borrowed Loan per Capita
(US$)
Hongling Capital 421 3,944 106,638
Lufax 192 24,984 7,686
RenRenDai 80 9,280 8,596
Yirendai 76 11,316 6,762

In terms of loan usage, Wangdaizhijia reports that nearly half of the borrowers use the
obtained loans for personal consumption, while a substantial percentage uses their loans as short-
term capital. The data from Wangdaizhijia referred to how the RenRenDai platform’s borrowers
purposed their loans (see Table 7).
Table 7: Loan usage of RenRenDai’s loans
Purpose Distribution
Personal use 47%
Short-term capital 23%
Investments 14%
Home improvement 5%
Other 5%
Cars 2%
Weddings 1%
Housing 1%
Healthcare 1%
Education 1%
7.3 COMPARISON OF ZOPA AND CHINESE PLATFORMS
The global P2P lending industry is experiencing unprecedented growth. Whereas the Chinese
firms contribute to that growth substantially, other regions are going through a boom phase too.
The comparison between the Chinese P2P companies and Zopa illustrates an ongoing trend
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where borrowers feature a fair distribution between those purposing their loans for personal
consumption and business investments.
The choice of the Chinese platforms for this comparison mirrors the desirable attributes
of the chosen platforms, such as an extended period of operation (e.g. Hongling Capital), strict
credit policy (e.g. Lufax), and pioneer status (e.g. CreditEase’s Yirendai). RenRenDai’s tradition
of transparency is also worth mentioning as a deciding factor in the choice of platforms for the
statistical comparison.
7.3.1 BUSINESS MODELS
Both Zopa and the Chinese platforms offer membership to their respective citizens. Zopa, for
example, only allows British citizens to borrow from or invest in the platform (Zopa, Risk
Markets). The thinking is that the platforms can track better the creditworthiness of citizens of
where they operate compared to foreigners who are a flight risk.
Both Zopa and a select number of Chinese platforms, such as RenRenDai and Hongling
Capital, have provision funds to create an extra security buffer to protect their investors against
NPLs and loan defaults. The practice is also evident to some degree in the operational model of
another Chinese platform, Lufax, which secures up to 30 percent of its loans using standard
insurance policies (Ya).
All the chosen platforms operate subsidiary markets, which serve to bolster the
platforms’ liquidity. However, the lenders are discretionary regarding the type of loans that
investors can trade on the subsidiary markets. The practice is evident in Hongling Capital’s
operations, where the high-value investors are encouraged to trade in loans with other investors.
However, the platforms usually allow only the well-performing loans to trade on the subsidiary
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markets. The approach is also common in other P2P lending UK firms, such as Funding Circle,
which nonetheless bars NPLs or loans that are in arrears from trading in its subsidiary market.
7.3.2 FINANCIAL PERFORMANCE
Zopa’s financial results are theoretically stronger compared to that of the selected Chinese P2P
lending platforms. The main difference between the two is that whereas Zopa operates a robust
online-based platform, which saves it from certain overhead costs of running brick-and-mortar
branches; the Chinese lending companies still operate their business using a combination of both
offline and online models (Deer et al.). Nevertheless, all the featured platforms generate their
revenues from mainly charging their investors service fees and charging their borrowers fees for
connecting them to lenders.
For a purely online-based platform, such as Zopa, the bulk of its expenses emanate from
the maintenance of its website and mobile applications. Other associated expenses include
human resource costs, sales and marketing, and risk management operations. However, the case
of Yirendai is unique because its marketing expenses include an extra five percent charge, which
it pays back to its parent company, CreditEase.
Zopa manages to report lower expense figures compared to the others because the
Chinese platforms also feature aspects of offline operations, such as creditworthiness checks and
credit scoring, which contribute to higher operational expenses. In essence, expense management
is a major concern for all the selected platforms since their business models depend on low costs
of operation so that they can gain a competitive advantage over traditional banking.
7.3.3 INVESTMENTS AND INSTITUTIONAL CREDIT SOURCES
By making public the composition of their investors, the selected P2P platforms increase their
positive brand perception. Similarly, by flaunting names of distinguished committee members,
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the platforms bolster their credibility as professionally managed institutions. Zopa goes a step
further in an effort to attract more high-value customers by declaring its notable investors, such
as Metro Bank and the UK Government.
Among the prominent committee members serving on its board, Zopa also employs the
services of two notable individuals, namely: (1) Phillip J. Riese, and (2) Jaidey Janardana. Mr.
Riese is the interim non-executive Chairman of the Zopa board, while Janardana is the Chief
Operating Officer (COO). Potential customers note the fact that Riese was the President of
American Express and Janardana was a Chief Marketing Officer (CMO) at Capital One UK at
one point.
The Chinese platforms also feature notable individuals in their boards. Yirendai, for
instance, employs Ning Tang—the Chairman of the Beijing P2P Association—in its board.
RenRenDai’s co-founder, Xinhe Li, used to work at Deutsche Bank; while Lufax’s General
Manager, Pen Ye, was a COO at Baidu and a Vice President at Alibaba. The choice of equity
investors also contributes to the perception of a P2P platform. Hence, Zopa excelled by settling
for Augmentum Capital, Bessemer Venture Partners, and Tim Draper as its principal equity
investors. Among the selected Chinese platforms, however, only Yirendai declares its equity
investors, who include IDG Capital Partners and Morgan Stanley.
7.3.4 BASIC LOAN PERFORMANCE AND HISTORY
It is easier to make an informed analysis of the Zopa’s loan performance compared to the
Chinese P2P lending companies because its operational history is longer than that of the other
platforms. Its history also suggests that it can institute the mechanisms necessary to mitigate risk
effectively. Moreover, since the Chinese platforms are no older than five years in the P2P
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lending industry, they are susceptible to the challenges that force young startups to fail (Kirby
and Worner).
All the selected platforms offer personal and small business loans. Zopa and Yirendai
offer loans with repayment periods starting at 12 months. However, Zopa offers the longest
repayment period of up to 60 months. On the other hand, the other three Chinese platforms,
RenRenDai, Lufax, and Hongling also offer short repayment periods, which range between 3
months, 1 month, and 5 days respectively. Zopa, Lufax, and Yirendai have loans that start at
US$1,600; compared to RenRenDai, which gives out loans as low as US$500. However, the
lowest loan value, which Hongling Capital can offer to a borrower, is US$16,000. Based on the
value of originating loans, Hongling Capital has the highest global value, which was US$13
billion by the end of 2015. Zopa’s US$1.7 billion, in comparison, lags behind Yirendai that has a
total of US$1.8 billion of originating loans.
7.4 ISSUES FACING P2P LENDING STARTUPS IN CHINA
The study interviewed Professor Jian (Jay) Wang from the University of Southern California’s
School of Journalism and Communication, to investigate Lending Plaza’s prospects as a P2P
lending startup in China. He was a suitable contributor because of his experience in branding and
public relations—with a specialty in the Chinese business environment (University of Southern
California).
The interviewer asked several questions, which relate to the challenges and opportunities
that the Lending Plaza would encounter when it established operations in mainland China.
Ultimately, the responses outline the issues facing the P2P lending industry in China (Professor
Jian Wang’s Interview: Starting a Peer-to-Peer Lending Platform in China).
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Question: What issues do you think face peer-to-peer lenders in China today?
Answer: The Chinese are naturally suspicious of engaging in lending transactions with
individuals who are not from the family or close friend circle. Thus, peer-to-peer lenders have to
contend issues of trust; otherwise, they face a high probability of failure.
To remedy the issue of trust, the Lending Plaza plans to employ the guarantee model,
where the company will source for provision funds for eligible loans; hence, increasing the
chances of its borrowers obtaining unsecured loans. The approach is similar to the strategy of the
California-based social lending platform—United Prosperity (P2P-Banking).
Question: How should a newcomer tailor its communication and marketing campaigns?
Answer: It is crucial for the entrant to define the market segment it is targeting before setting up
operations. This will help it concentrate the resources necessary for it to survive in the highly
competitive online-based industry in China.
Accordingly, the Lending Plaza targets young to the middle-aged customers (20 – 40
years) because they are more technology savvy. However, the Lending Plaza would also target
the older individuals (with 40 plus years) to be its investors because they possess a considerable
amount of disposable income compared to the younger individuals.
Question: What is the sentiment of the government towards the P2P lending business
model?
Answer: The regulator, CBRC, is bound to resist the upsurge in the growth of P2P lending
platforms because of incidences in the past where such platforms have conducted fraudulent
operations. In recent developments, the CBRC has proposed new, strict measures indicating its
distrust towards the P2P lending business model in its entirety.
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To mitigate the effect of the stringent measures on its market entry plans, the Lending
Plaza has thus opted for the guarantee model. The company projects that the model will be easier
to sell to the Chinese market compared to simple intermediation, for instance, because the
proposed model communicates an aspect of trust upfront.
Question: What strategies could an entrant use to become competitive in the Chinese P2P
lending industry?
History shows that the Chinese online industry is a tough environment for startups. In the late
1990s and the early 2000s, for instance, multiple online companies failed. However, the ones
that survived, such as Alibaba, grew into flourishing corporations. Thus, it is crucial for a
newcomer to offer unique and easily marketable products or services, if it wishes to become
competitive in the Chinese online-industry

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CHAPTER 8: DISCUSSION
Small Chinese businesses primarily rely on their founders’ savings as a source of credit. The
phenomenon is pervasive because traditional banks focus on funding large or government-owned
enterprises. As a result, a large segment section of the population remains underserved by the
existing credit networks. However, according to ongoing trends, P2P lending is poised to play a
major role in the finance sector—hence filling the gap that traditional banking ignored.
An increasing number of individuals are adopting peer-to-peer lending because it saves
them from the lengthy (and mostly ineffective) process of obtaining loans from traditional banks
(J. G. Wang et al.). However, the industry is prone to segmentation and non-transparency, which
exposes its users to unethical business practices, such as fraud. The fact that the CBRC failed to
create a properly regulated environment for the P2P lending platforms during their formative
years also contributed to the negative perception associated with the industry.
The regulator’s recent reactions of instituting raft of measures that are overly strict might
nonetheless be counteractive to the expansion of the Chinese P2P lending platforms. On
implementation, for instance, the policies would make the operating environment excessively
unfavorable for new market entrants, such as the Lending Plaza. However, it is worth noting that
there are cases of success that newcomers can use as a reference on how to start a P2P lending
business. The case of the UK P2P lending platform, Zopa, for instance, provides a sufficient
example of how to exploit technology to solve the problems of traditional finance, such as
information asymmetry. Similarly, the excellent financial results of particular P2P platforms in
recent years, suggests that individuals are willing to use the paradigm of P2P lending if they can
find a platform that addresses their financial needs.
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8.1 LESSONS FROM ZOPA
Zopa operates a consumer-to-consumer (C2C) business model. As a lending platform, it
facilitates borrowers to get loans from groups of lenders wishing to earn from rates of return on
their investments. The resulting disintermediation of the traditional banking sector creates a
credit network similar to contemporary social platforms, thus effectively simplifying the lending
and borrowing process for Zopa’s members (Prosser).
Accordingly, the Lending Plaza would become profitable in a relatively short operating
period if it offers a model that simplifies how the Chinese source for loans. However, it also
means that the proposed entrant should design a model that is remarkably more disruptive
compared to what the existing Chinese platforms currently use. Nevertheless, because the
Lending Plaza aims to harness the capabilities of Internet finance in developing its service
offerings, it has the opportunity to create the necessary competitive advantages in a cost effective
manner.
Zopa is purely online-based. That means that its borrowers and lenders interact through
the company’s online platform. As a result, any UK resident can consume Zopa’s services
around the clock, fast and conveniently. The method promises to suit Lending Plaza’s aims of
entry into the Chinese market because, otherwise, it is not viable to serve all the Chinese
provinces without a substantial capital investment.
On the other hand, Lending Plaza could harness the interconnectedness that the Chinese
created through the widespread use of Internet-enables mobile devices to expedite its marketing
goals. Ultimately, by choosing to access its target customers through digital strategies, such as
advertising on Chinese social media, the Lending Plaza will enjoy brand recognition in a
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relatively short time. However, the proposed entrant would still have to protect itself against
cyber security challenges, which currently affect the Chinese online industry (Gierow).
By diversifying its revenue streams, Zopa bolsters its main business of acting as a
financial intermediary. One of the ways the company achieves multiple avenues of income is
through referring some of its borrowers to other companies offering financial services. The
company furnishes other loan providers with contacts of its borrowers if they do not attract
enough funding from the Zopa investors because of poor loan repayment history, for instance.
Similarly, the Lending Plaza should aim to pursue several secondary revenue-generating
operations in order to enhance its liquidity.
Suggestions include selling advertising space on its website and offering paid backlinks
on its online content. For reference, the Lending Plaza could borrow from the case of the e-
commerce corporation, Amazon, which diversified its book-selling business to venture into
online retailing and computing services (Holcombe). Moreover, Zopa continued to illustrate how
a P2P lending platform should evolve when it applied for a banking license in late 2016—despite
already enjoying revolutionary success in peer-to-peer lending (Janardana).
8.2 LESSONS FROM THE CHINESE PLATFORMS
Data from the four selected Chinese platforms, that is, Hongling Capital, Lufax, RenRenDai, and
Yirendai, suggests poor transparency levels. The Chinese platforms do not provide their loan
books’ data for public scrutiny, which makes it difficult for potential investors to determine the
actual performance of their originating loans (Goué). Although Hongling Capital offers partial
snapshots of its loan book to the public, it is still unlike Zopa, which provides a link to its loan
book containing all the platforms’ loan history.
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By releasing their loan data to the public, P2P lending platforms attract both individual
and institutional investors. Thus, the Lending Plaza should ape Zopa’s practice by also planning
for proper recording of its loan data to facilitate regular publishing on publicly accessible sites.
Such an approach would even endear the entrant to the Chinese regulators, thus ideally reducing
the amount of pressure related to transparency concerns.
A few of the Chinese P2P lending platforms are subsidiaries of either financial or
insurance companies. Lufax, for instance, is a subsidiary company of the insurance company,
Ping An Insurance Group (Deer et al.). Similarly, Yirendai is the online peer-to-peer lending
division of the finance services company, CreditEase. The two platforms report impressive
financial results regularly, despite being in operation for only two years. For example, Lufax
loaned out up to US$5.9 billion by the end of the 2015 financial year, while Yirendai reported
US$1.8 billion of originating loans in the same period.
Thus, it is apparent that an entrant, such as the Lending Plaza, needs to attract substantial
capital investments to enable it to achieve desirable financial results in a short period of
operation. However, the assumption does not factor in the possibility of the Lending Plaza
achieving its objectives based on the consistent offering of high-quality services alone. As an
example, Hongling Capital managed to attract the highest transaction value in loans globally
because it satisfied its investors’ appetite for risk for more than four years without fail (Goué).
The Chinese platforms employ experienced management, which enables them to manage
the challenges of operating in a highly competitive environment. For instance, Lufax benefits
from the input it receives from the management team attached to its parent company. Moreover,
Lufax’s parent company (the Ping An Group) specializes in insurance products, thus affording it
the industry connections that are useful for navigating the Chinese finance sector (Deer et al.).
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Besides, by looking at the composition of the non-executive boards of selected Chinese
platforms alone, it is evident that employing prominent professionals plays a role in the
generation of outstanding financial results of a company. Similarly, the Lending Plaza should
aim to attract the services of experienced management personnel, because that way it would
benefit from well-designed strategic plans. By including prominent professionals on its board,
the entrant could also profit from the perception of credibility that such a crop of personnel
brings onboard.
8.3 ADAPTING TO CHINA’S REGULATORY ENVIRONMENT
The primary weakness of the Chinese regulatory framework is that it defines the conditions
within which the P2P lending platforms should operate in counter-intuitively. For instance,
although it seeks to encourage the growth of structured peer-to-peer finance, recent reports show
that it also aims to institute stringent capital requirements (China Daily - USA). Moreover, the
CBRC’s proposal of new, strict the strict policies creates an uneven playing field because
established lending platforms have already exploited the regulatory vacuum that existed in the
earlier years.
As a result, the Lending Plaza would have to spend more time designing and testing its
entry strategy so that it can survive in the prevailing harsh business environment. Still, in the
converse, there is a possibility that the new measures could cause a significant number of small
P2P lending platforms to close, thus reducing the competitiveness of the industry somewhat.
A majority of the existing Chinese platforms rely on fund pools to generate the credit
sources their borrowers need. However, recent CBRC’s proposals would require P2P lending
platforms to produce funds by direct one-to-one funding between the investor and the respective
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borrower alone (Deer et al.). In contrast, Zopa’s business model flourishes because investors can
lend amounts that are as little as US$14, regardless of the loan total a borrower applies.
In essence, therefore, many investors can participate in lending to a single borrower, thus
increasing the chances of eligible loans getting the funds they require. The Chinese regulatory
framework thus risks pushing a substantial number of lending platforms into liquidity problems
as they struggle to facilitate the funding of the qualifying loans. To mitigate falling into a similar
trap, the Lending Plaza should therefore, attract a sizable number of investors who have the
financial capability of committing large amounts of money to fund unsecured loans.
8.4 SITUATION ANALYSIS
Although the Chinese peer-to-peer finance industry poses significant challenges to the proposed
entry of the Lending Plaza, the company features important strengths, such as an ability to offer
attractive rates of return to its investors, which will enable it to establish itself in the industry
rapidly. Accordingly, the following sections outline the situation analysis of the Lending Plaza’s
prospects.
8.4.1 STRENGTHS
• The Lending Plaza’s business model would make the process of applying for loans by
borrowers conveniently fast, and make it simple for investors to find loans that offer
high rates of return.
• Since the Lending Plaza would provide its services through an online platform, users
would benefit from being able to conduct their transactions around the clock and from
anywhere in China.
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• Unlike the majority of the existing Chinese lending platforms, which do not disclose
their loans’ performance, the Lending Plaza would create a transparent platform
where all the loan book data is available for download.
• To reduce the high-risk factor of unsecured loans, the Lending Platform would use
the guarantee model to ensure that investors do not lose their money on NPLs or loan
defaults.
8.4.2 WEAKNESSES
• As a new entrant, the Lending Plaza cannot attract prominent professionals to serve
on its board at short notice, thus creating a disadvantage for the platform. Moreover,
the company will compete with mature platforms that gained experience by dealing
with large corporations and local governments, hence managing to attract top talent.
• The Lending Plaza aims to attract investors who are between 40 to 50 years to
because they have considerable disposable incomes. However, the typical borrower
profile of the Chinese investors is majorly comprised of young individuals.
8.4.3 OPPORTUNITIES
• Chinese online platforms deploy websites that are poorly designed and user-
unfriendly. Thus, the Lending Plaza sees an opportunity where it can attract
customers through a well-designed and intuitive website. On the other hand, some
Chinese P2P lenders still feature a mixture of both offline and online business
models. However, since the Lending Plaza would use a purely online-based platform,
it would save on the operating overheads and use the saved funds to enhance its
online operations.
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• The P2P lending paradigm has not reached the maturity stage, in China. As a result, a
majority of the Chinese platforms do not use the latest site designs necessary for
running a finance platform. The Lending Plaza, therefore, has the opportunity to
attract customers by adapting the intuitive and straightforward design principles it
would borrow from established players, such as Zopa.
8.4.4 THREATS
• The targeted Chinese customers are prone to mistrusting ‘strangers’ when it comes to
money issues. As a result, the Lending Plaza will have to contend with a market that
may not be ready for the products it aims to introduce.
• The current regulatory framework is still a work in progress. The CBRC is still
experimenting with the types of sanctions it should implement to control the
pervasive unethical business practices that face the peer-to-peer lending industry in
China. As a result, it is not apparent whether the Lending Plaza’s strategies would
survive the regulatory onslaught in the mid- to long-term.
• As a new entrant, the Lending Plaza would face the challenges that make startups to
fail after only five years of operation. Moreover, as a newcomer, the Lending Plaza
would spend the bulk of its capital on communication and marketing efforts without a
comparable inflow of revenues.

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CHAPTER 9: THE STRATEGIC PLANNING MODEL APPROACH TO SENSITIZING THE
MARKET TO LENDING PLAZA’S ENTRY
The P2P lending model has gained popularity in mainland China in the past decade. However,
the poor regulation of the sector by the CBRC has exposed a sizeable number of borrowers and
investors to questionable banking practices by fraudulent P2P lending platforms (China Daily -
USA).
The market entry of the proposed Lending Plaza was, therefore, subject to a lukewarm
public perception regarding the kind of measures it would put in place to mitigate unethical
banking practices. To remedy the situation, the newcomer sought to assure its key audiences of
its commitment and ability to establish a vibrant and profitable P2P lending platform. Some of
the stakeholders it targeted included:
(1) Customers: such as the potential borrowers and lenders;
(2) Affiliates: such as the guarantors who would provide the backing funds to insure the
customers against unforeseen losses; and
(3) The regulatory authorities, such as the CBRC (see section 3.4 for a more
comprehensive listing).
9.1 RESEARCH UNDERTAKEN
To bolster the strategic planning of its planned Public Relations communications, the Lending
Plaza’s founders carried out a mixture of both qualitative and quantitative research. From mid-
2016 to December 2016, the founders collected, collated and evaluated industry analysis,
pertinent literature, and case studies.
Also, the research analyzed media reports to gauge the sentiment of the Chinese market
towards the unfolding sector regulations by the CBRC. In its efforts, however, the founders
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found out that the U.K. P2P lending platform, Zopa, would provide the requisite illustrations of
how to run a successful P2P platform. As a result, the major parts of its analyses were on Zopa –
and how they would apply to the Lending Plaza’s situation (see section 7.1 for the summary of
the analysis on Zopa).
(1) Industry analysis: the research analyzed reports from leading industry monitoring
companies, such as Deloitte, Euracific, ACCA, and the Mercator Institute for China
Studies (Deloitte LLP; Deer et al.; Gierow; Goué). Besides, sources, such as the
reports on the British P2P lending industry by the Bank of England enabled the
research to gauge the impact of the P2P lending model on banking (Atz and Bholat).
(2) Media reports’ monitoring: the news reports from China and Western media houses,
such as Forbes.com and China Daily – USA, provided a hint on how the market
reacted to the developments concerning the new regulation proposals by the CBRC.
In addition, the media reports summarized the public opinion on whether customers
would wish to see the P2P lending model grow into a mature banking option in
mainland China.
(3) Case studies: although the media reports generated the outsider views concerning the
operations of P2P lending platforms, the researcher relied on case studies of chosen
platforms such as PaiPaiDai, RenRenDai, Lufax, and Hongling Capital to inform the
situational analysis of the Chinese P2P lending industry. Additionally, the analysis of
Zopa provided the comparative perspectives to the research.
(4) Interview: the research incorporated the suggestions of Professor Jian Wang as it
sought to tap into his experience of running PR campaigns in China.
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9.2 STRATEGIC PLANNING
After identifying the Lending Plaza’s goals (see section 3.2); defining the problem and
constraints (see sections 3.1 and 3.5); and carrying out a situation analysis (see section 8.4); the
research created the basis for a communications plan capable of sensitizing the targeted
customers to the strengths of the Lending Plaza’s on its market entry.
In the early stages of the strategic planning, the founders defined the communication
needs that were necessary for addressing the widespread concerns of the Chinese stakeholders
concerning the P2P lending industry. Later on, the founders used the research findings to
formulate all the possible scenarios that the Lending Plaza would encounter once it set up
operations in mainland China. Some of the aspects the founders looked into included cyber
security, sector regulations, and protecting customers’ funds against unexpected losses using the
guarantor model. The founders tailored their key messages to audiences, such as the potential
borrowers and lenders, the CBRC, affiliates, and guarantors.
9.2.1 COMMUNICATION GOALS
(1) Get press release spots on two leading online websites, such as Taobao and Tianya,
and advertisement space on two leading print media, such Wen Hui Daily and Xinhua
News running for two months to sensitize the Chinese market to the planned entry of
the Lending Plaza.
(2) Persuade the regulatory authorities to accept the Lending Plaza’s approach to P2P
lending and get an operating license within three months of meeting the regulator’s
officials and fulfilling their prescribed requirements.
(3) Attract up to 500 customers to sign up with the Lending Plaza within six months of
operations by assuring the targeted customers and other concerned stakeholders that
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the Lending Plaza would safeguard their funds against cyber security threats and
unethical banking practices.
(4) Break even within a year of operations to illustrate the viability of the Lending
Plaza’s business model to potential investors.
9.2.2 POSSIBLE STRATEGY APPROACHES
(1) Tactical: the planned entry of the Lending Plaza coincides with the public opinion in
China regarding the need for P2P platforms to conduct their businesses ethically and
institute security measures against online-based attacks. Accordingly, the founders
have tailored the PR campaigns’ key messages to address these issues.
(2) Thematic: the proposed communications would focus on assuring the targeted
customers that by choosing the Lending Plaza their funds would be subject to
protection using the guarantor model. Furthermore, the messages would include
reference to the newcomer’s website, which would apply the latest security
mechanisms and would be hosted offshore in the US.
(3) Timing: since the proposed entry of the Lending Plaza comes at a time when the
Chinese market is ready for transparent and responsible P2P lending businesses, the
PR campaigns would thus be successful in addressing the widespread concerns of the
public.
(4) Tonality: the key messages would be endearing to the targeted audiences as they
contain elements of both optimism and pragmatism. Based on media monitoring, the
founders realized that the potential customers would want to hear of messages of
assurance regarding whether the P2P lending approach has a future in China.
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9.3 TACTICS
(1) Sensitize the Chinese market: the Lending Plaza would publish a series of press
releases on popular Chinese media, such as Taobao and Tianya. It would also seek to
publish on the leading news outlets, such as Wen Hui Daily and Xinhua News. The
Xinhua News, for instance, has been on the forefront of covering the events regarding
the P2P lending industry. Thus, publishing on their websites would enable the
Lending Plaza to have a wider reach.
(2) Persuade the regulatory authorities: the founders would set a meeting with the
officials from the CBRC to introduce and explain the planned business model of the
Lending Plaza. From the communications, the founders would get a sense of what
they would need to change in their approach and what they would need to fulfill to
gain approval from the CBRC.
(3) Assure the targeted customers: the founders would use a combination of press
releases and targeted blogs to communicate their commitment to providing a safe and
useful means for the P2P borrowers and lenders to conduct their transactions.
Moreover, the Lending Plaza plans to create a sister website, where the guarantors
would display their input in protecting the customers’ funds against losses or non-
performing loans.
(4) Illustrate the viability of the Lending Plaza’s business model: the founders would
employ sophisticated business simulation software to show how the company would
perform given a set of scenarios. Additionally, the company would communicate its
intention to mirror the approaches of successful P2P platforms, such as Zopa. As a
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result, the founders expect that the key stakeholders would get a sense of how the
Lending Plaza would generate returns on their investments.
9.4 EVALUATION
The Lending Plaza would measure the success of its communications by:
(1) Conducting a comparative analysis of the pre-entry research findings and the post-
entry results of research to gauge how well the targeted audiences reacted to the
company’s business model;
(2) Identifying the customers who sign up for the services after a year of operations – as
it would indicate the acceptance of the company’s approach; and
(3) Monitoring market awareness by checking social media engagements or the
sentiments of online forums – to gauge whether the company has sensitized the
targeted segments to its services
Additionally, the evaluation would seek to:
(1) Measure whether the company is on course to meet its objectives; and
(2) The company has managed to convince enough people to use P2P lending approach
despite the ongoing regulatory and industry challenges.
9.5 BUDGET AND TIMELINE
To start with, the founders would use a budget of US$ 7,000 to promote the guarantor model of
the Lending Plaza’s P2P platform. On successful implementation of the campaign, the founders
will seek additional funding to facilitate the PR campaigns aimed at promoting the newly
launched P2P platform. The founders aim to run the necessary campaigns and website launches
within a year – starting December 2016.

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CHAPTER 10: TAKEAWAYS FOR THE LENDING PLAZA AND CONCLUSIONS
It is difficult to analyze the peer-to-peer lending industry in China without using comparisons
from other parts of the world. The US platforms, such as the Lending Club and the Prosper
Marketplace could provide appropriate case studies for the Lending Plaza. However, the study
chose Zopa because it is among the few platforms that provide their loan books without charge
for purposes of analysis, and because it has a long operational history. The comparisons enabled
the study to make the necessary insights into how a P2P lending platform should operate in order
to become competitive. The findings suggested that successful platforms are transparent and that
they employ experienced management personnel.
On the other hand, the study indicated how the current regulatory controversies facing the
Chinese market have the potential of forcing platforms with ill-designed operational strategies to
fail. However, it also observed that the developments are symptoms of an industry that is yet to
mature. As a result, it projected that if the Lending Plaza manages to establish its operations in
the current business environment of Chinese P2P lending and survive, it would be poised to
flourish when the conditions improve. To illustrate the point, it cited the example of Chinese e-
commerce giant, which evolved into an important and successful corporation because it adapted
to the changing landscapes of the Chinese online business environment at the turn of the
millennium.
According to the remarks of Professor Jay Wang, the Lending Plaza should design its
business model bearing in mind that the Chinese are wary of lending money to people outside
their trusted social circles (Professor Jian Wang’s Interview: Starting a Peer-to-Peer Lending
Platform in China). As a result, the Lending Plaza aims to adopt the guarantee model in its
lending options to enhance the perception of trustworthiness. It will even create a guarantor
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section on its website so that customers can scrutinize the entities contributing to the security of
their invested funds. However, the approach is bound to face opposition from the regulatory
authority because current policy proposals suggest that the CBRC would bar peer-to-peer lending
platforms from offering principle, investment, or loan guarantees. Still, the Lending Plaza can
circumvent the hurdle by adopting the method that Zopa uses to protect its investors against
NPLs or loan defaults using a provision fund.
The Lending Plaza needs to plan for how it will attract experienced teams to oversee the
management of its lending operations. The aspect is also on the radar of the CBRC’s regulatory
reviews, and it would thus be paramount for the Chinese P2P lending platforms to prove that
their management teams have the requisite credit-risk and general finance experience. However,
as a startup, the Lending Plaza cannot afford to hire the individuals who have the required
management experience on a full-time basis.
Therefore, the Lending Plaza should ideally employ the teams on a freelance basis. As a
result, the company would create room for itself to experiment with the inputs of various
individuals without closing off the opportunities for the managers it would ultimately desire to
retain for the long-term. The other option for the Lending Plaza would be to ask prominent
professionals to serve on its non-executive committee. The company would demand only a
fraction of their time, but it would be highly effective in bolstering the credibility of the Lending
Plaza in the perspective of both the CBRC and the other stakeholders.
The pioneering efforts of the UK peer-to-peer lending company, Zopa, proved that it was
possible for non-traditional finance entities to provide the disintermediation effect between
traditional banks and their investors and borrowers. The disruptive nature of the lending model
also made it possible for individuals with creditworthiness scores unacceptable to traditional
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banks to get access to unsecured loans. As a result, finance analysts termed the paradigm with
various monikers, such as alternative finance, marketplace lending, and crowdfunding.
Subsequently, the exponential growth of peer-to-peer lending in China finally showed that the
model was viable even in developing economies, where issues of trust and transparency affect
lending between individuals who are not from the same social circles.
The successes of P2P lending platforms in China, such as Hongling Capital and
RenRenDai, informed Lending Plaza’s plans of establishing a similar business in mainland
China. Its founders are aware that the industry poses significant risks to their investments, but
they are confident that by using technological innovations, the entrant can mitigate the
challenges of operational and communication efficiency. Furthermore, the gradual interest that
the CBRC is starting to show in the P2P lending industry is evident that there are considerable
opportunities at stake, which the Lending Plaza could exploit.

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Asset Metadata

Creator Gan, Deyin (author)

Core Title Comparative analysis of peer-to-peer lending in China and the United Kingdom: an assessment of the Lending Plaza’s market entry prospects

School Annenberg School for Communication

Degree Master of Arts

Degree Program Strategic Public Relations

Publication Date 05/03/2017

Defense Date 05/03/2017

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag China,OAI-PMH Harvest,online lending,p2p

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Floto, Jennifer (committee chair), Kozinets, Robert (committee member), Tenderich, Burghardt (committee member)

Creator Email angelag0934@yahoo.com,dgan@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c40-370394

Unique identifier UC11257872

Identifier etd-GanDeyin-5313.pdf (filename),usctheses-c40-370394 (legacy record id)

Legacy Identifier etd-GanDeyin-5313.pdf

Dmrecord 370394

Document Type Thesis

Rights Gan, Deyin

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

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