Internet Business Thinking

Chapter 4 Giants lead the business model (1)
(Section [-]) Empire Model: Ali's Financial Empire Evolution Theory

The ultimate goal of Ali Finance is not to establish a financial institution such as a bank, but to allow capital flow, logistics, and data flow to form the expressway network of the Ali Empire. With Alipay as the core, it will establish a financial ecosystem that serves various transactions.

From small loans, virtual credit cards, Internet insurance, Yu'e Bao, and asset securitization, the platform strategy of Ali Small and Micro Finance Group (hereinafter referred to as Ali Finance) has become clearer.Many traditional financial operators shouted "Wolf is coming", they think that Ali Finance is robbing them of their jobs.In fact, the ultimate goal of Ali Finance is not to establish a financial institution such as a bank, but to allow capital flow, logistics, and data flow to form the expressway network of the Ali Empire, and to establish a financial ecosystem that serves various transactions with Alipay as the core. Force financial institutions to serve the system and become part of it.

Ma Yun’s ideal is not just to be a leading e-commerce company, but to establish his own online business empire and create the highest form of business model—the national business model. The construction of the Alibaba financial ecosystem is an important piece for Ma Yun to realize this ideal.In the future, Alibaba will be positioned as the three core businesses of "platform, finance and data". This is the new strategy proposed by Jack Ma at the Internet Business Conference in September 2012. Since then, Alibaba has made frequent moves in the financial field and deployed new businesses , launching new products and adjusting the organizational structure and other measures simultaneously.

Ma Yun has repeatedly stated that he will not compete with banks, and they will do what banks do not want to do. However, Ali Finance has formed a full process in the field of financial services such as loans, guarantees, insurance, credit, payment and settlement, and launched in June 2013. Yu'e Bao and asset securitization have filled the link of deposit absorption, and Ali Finance has become a fully functional financial machine in theory.Although there are still many channels that need to be opened up, it is only a matter of time. The launch of products that have shocked traditional finance has attracted enough attention and added weight to the separate listing of Ali Finance.

Build a grassroots credit system
The "online credit reporting system" for merchants established with the help of Chengxintong, Chengxintong Index and other services is the foundation and foundation for the smooth operation of Ali Finance.In the future, Ali Finance will have diversified channels for obtaining information. In addition to the Alipay trading platform, there is also huge room for imagination in cooperation with the two social platforms Sina Weibo and Tencent WeChat.Ali takes a stake in Sina Weibo, sells insurance in a joint venture with Tencent, and converts personal relationships in social circles into credit lines. Of course, it is still unknown whether the two social platforms Weibo and WeChat are willing to fully open data to Ali.

What Ali Finance is doing now is not typical Internet finance, but more like the Internetization of small loan companies.But what Ali Finance can do is by no means what small loan companies can do.Ali Finance has the most spirit of Internet finance. It uses the big data it has mastered to build an analysis model and process real-time dynamic data to complete the loan review.The basis for its lending is mainly the financial status of the business enterprises on the Alibaba platform during the operation process, as well as the user's network activity, transaction volume, and online credit evaluation.

Ali Finance uses a non-manual method to make a correct judgment on whether to borrow or not. It has done things that banks cannot do and are unwilling to do, and small loan companies cannot do well. What they are digging is a blank area.

In addition, compared with small loan companies, the average annualized interest rate of Ali small loans is 18 points, but because the loan repayment is very convenient, the efficiency of the use of funds has been improved.Ali Finance does not encourage users to borrow for a long time. Based on the average loan period of about 150 days, that is, the borrowing intensity of two-fifths of a year, the average cost is only a few points, compared with more than 20 points of small loan companies, the cost advantage obvious.

According to public information, the registered capital of Zhejiang Ali Small Loan Company is 6 million yuan, and the registered capital of Chongqing Ali Small Loan Company is 10 billion yuan.Ali is registered as a small loan company, but its positioning is definitely not a small loan, because it does not have a banking license. Ali can use this platform to do business nationwide.In view of the fact that small loan companies can never exceed two banking financial institutions for financing, but the financing amount cannot exceed 50% of their own capital, which means that the two small loan companies of Ali Finance can only lend at most 24 billion yuan. This is far from enough for Ali's long-term development strategy.

The source of funds for Alibaba’s small loans will continue to evolve and gradually diversify. One third is self-owned funds, one third is the introduction of external funds, and the other third is asset securitization.Asset securitization refers to the securitization of existing loans, and cooperates with trust companies and financial institutions to make investable securities and sell them to third parties. Such products are currently in short supply and are often digested internally.For Ali Microfinance, in addition to the consideration of its own income, the more important significance of getting involved in asset securitization is to improve liquidity.

Design risk control system
Ali also discussed whether to do P2P internally, but finally gave up. The main reason is the risk issue.Will there be P2P in the future?It will definitely be done, and that will have to wait for Alipay's transaction data to accumulate enough.Ali Finance chose to intervene in the credit field through the user entrance within the Alibaba and Taobao systems, and the credit of this part of users is controllable.Taobao and Tmall have tens of thousands of small online stores. The registration information, historical transaction records, sales, cash flow and other information of these online stores are clearly in Alibaba's database.As long as the online store has real orders, Ali can lend to it.Online stores with good operating conditions can also obtain loans with their own credit.Compared with traditional banks investigating companies one by one and reviewing them one by one, Ali's costs and risks are significantly reduced, and the efficiency is greatly improved.Many Taobao store owners have been operating for many years, and Taobao stores are even the livelihood of their families. The cost of default is huge, so the probability of default for Taobao merchants is very low.

Ali has also established a risk warning mechanism to adjust user credit ratings in a timely manner based on real-time information. Fluctuations in account transactions or orders, and changes in Alipay's capital transactions will all lead to real-time adjustments to user credit ratings.Once the set red line is broken, the background will require the lender to repay the loan early, and the merchants will be the first to recover funds from various loan channels, so as to minimize the possible bad debt rate.This is more advanced than the mechanism of bank intervention after the fact.

There is nothing special about Ali Microloan’s bad debt handling method. Even if the user is really unable to repay, he can only do bad debt handling. If the amount is not too high, it may not be retroactive, but this user will lose the right to borrow again. It will be blacklisted by Alibaba's various platforms and cannot be traded or opened a store.

Big data is the foundation of Ali Finance. In the data analysis model, various weights are constantly fine-tuned in real time to make data analysis more accurate and the bad debt rate will continue to decline.On the other hand, the standard of credit assessment will not be solidified, but will prevent users from fraudulently through higher and higher costs.

Compared with individual risk control, systemic risk control will be more difficult.Ali micro-loans are designed to be divided into two types: order loans and credit loans. The maximum amount of Taobao and Tmall order loans is 100 million yuan, and the cycle is 30 days; the maximum amount of credit loans is 100 million yuan, and the loan cycle is 6 months.Ali Microfinance has provided loans to more than 20 small and micro enterprises, with an average loan amount of 6.1 yuan per household.

The purpose of user loans is mainly to supplement working capital, rather than investment, so the risk is relatively low, and the bad debt rate is controlled at 0.98%, which is on the order of tens of billions.Calculated on the basis of an average of 100 for each loan, 100 (times) of merchants are required to receive 500 billion, and the risks are dispersed.Why is Ali’s small loan positioned below 100 million?According to Ali's internal assessment, the lower limit of the bank's loan is 500 million. If it is set between 100 million and [-] million, the products made will be too close to the bank's products.Positioning below [-] million is also a reason for decision-makers to force Ali Microcredit to make products that are sufficiently differentiated from banks, and it is also a consideration of risk control.

Build a data closed-loop system
Ma Yun believes that it is not cost-effective to sell data right now, and the value of data should not be limited to "realization". The ultimate point of data is the accumulated credit, including personal credit and corporate credit.Turn data into credit, and good credit can obtain loans, better services, and increase wealth.This is a virtuous circle, that is, data value.

Alibaba's analysis and application of big data is one of the cores of Internet finance. Alibaba Cloud undertakes the most important data analysis and also undertakes external business. At the same time, Alipay also has its own data analysis team.

On the platform of Ali Finance, what the Internet can provide is the real-time docking of the needs of both supply and demand: lower transaction costs, accurate customer segmentation, and customized customer needs.After the user submits an application online, the back-end data and information are automatically matched. If the applied loan amount is within the system's identified range, the system will take a few seconds to make a decision on whether to grant the loan, thereby minimizing labor costs.

In the system of Ali Finance, a closed-loop system of data-credit-wealth has been formed.A considerable amount of raw data will be generated by the transaction behavior of the user through the PC or mobile device. The raw data will be collected by the device and enter the distribution center, and be distributed to each cluster server according to certain distribution rules.Scattered, unordered, and unrelated raw data is processed into a human or machine-understandable form on the cluster server, and the data is further mined to form a business model.In addition, in order to facilitate internal data exchange, security and matching issues, Ali Group also built a data exchange platform.On this platform, each business group can realize the internal flow of data and maximize value.

Open platform trading system

Ma Weihua, the former president of China Merchants Bank, said that Ali is subverting the bank.In fact, Ali Finance is currently doing things that banks cannot do, and subversion is a matter of the future—this subversion is to build an ecosystem of online financial platforms.

Although Ali Finance is currently involved in a wide range of fields, it only serves users on the Alibaba platform. Without companies or merchants registered on Tmall and Taobao, Ali Finance cannot serve. The key to Ali Finance's transition from a closed-loop system to an open system It is Alipay.

Most of online payments and e-commerce payments are made through Alipay, which plays a fundamental role.According to the data provided by Analysys International in the first quarter of 2013, Alipay accounted for 48.3% of the payment market.The information of all kinds of transactions is in Alipay, including orders and whether to pay. In the long run, it is difficult to falsify such information.

It is more troublesome for personal loans, but relatively speaking, personal overdrafts are much easier to operate.A new business promoted by Ali Finance in 2013 is to use bank funds to provide consumer loans for Alipay users of mobile terminals such as mobile phones and tablet computers to shop on Taobao and Tmall Mall, that is, to issue virtual credit cards. It is a threat to banks. The business line is initially set at 1 to 5000 yuan. Ali Finance expects the loan volume in the first year to be between 4 million and 5 million yuan.

Any behavior itself will generate data, but only online data can be deposited and utilized.Alipay is the best tool for Ali's data solidification. In Ali's further expansion, all the imagination is on Alipay.Alibaba has realized complete non-cash internally—salaries are sent to Alipay, and all transactions are settled on Alipay—this approach can be extended to individual Alipay users.

The Alipay accounts of the two mobile terminals can freely transfer funds. Due to security issues, this is difficult to achieve under the bank's payment system and must be operated outside the banking system.This problem has been technically broken through, the transaction can be settled directly in Alipay without going through the bank transaction system, and does not generate any fees.The imagination of this innovation is huge. If every mobile phone user has an Alipay account, it means that all people with mobile phones can realize non-cash transactions, and the data will actually be accumulated. This is a great opportunity for Ali Finance. treasure.Through the analysis of big data, Alipay users will automatically generate credit lines.In the future, the role of Ali Finance will be more like a credit reviewer and a platform server, and the main body of the transaction will be the enterprise and individual users with the credit label of Ali Finance. (Section [-]) Paid to cross the bridge: Everyone is striving for innovation, what do you use as "tuition fee"

Unlike some P2P companies that convert a certain amount of personal loans into "credit asset packages" and then sell them to professional investors, Lufax created by Ping An of China provides one-to-one transactions between wealth management products and loans, and the guarantee company guarantees the principal and guarantees for expected returns.

Ping An is the first insurance group to cooperate with Alibaba, Tencent and other e-commerce and social platforms on a large scale in an all-round way, and the first traditional financial institution to truly touch the Internet and establish an online P2P.Why can Ping An Group be the first to "touch the Internet"?How does Ping An play Internet finance?
Unlike some P2P online lending companies that convert a certain amount of personal loans into "credit asset packages" and then sell them to professional investors, Lufax, a subsidiary of Ping An, provides one-to-one transactions between wealth management products and loans, and the guarantee company Guarantees are provided for the principal and expected income, which guarantees both principal and interest.

Lufax, the full name is Shanghai Lujiazui International Financial Assets Exchange Market Co., Ltd.It is a member of Ping An Group and was established in September 2011 with a registered capital of several hundred million yuan.

The emergence of Lufax is, on the one hand, related to the rise of Internet finance and the importance attached to it by Ma Mingzhe, Chairman and CEO of Ping An Insurance; on the other hand, it is closely related to the innovation of banking business and the development of small and micro financing.

Where does Ping An's innovation gene come from?From Ma Mingzhe's famous viewpoints such as "Native Cat and Foreign Cat Theory" and "Pay Bridge Theory", we can get a glimpse of the clues of innovative genes.In recent years, Ma Mingzhe has spared no expense in recruiting talents and "paying to cross the bridge" has bought time and a leading position for Ping An Group.Lufax has also become a collection of consultants, finance, and IT professionals who are a mixture of local cats and foreign cats.

Build a new business model
Lufax is an Internet platform that connects small and micro investors and borrowers. It is a special P2P online lending model.Lufax provides simple wealth management products for fund lenders, so that fund lenders can directly match with borrowers. The two parties sign an electronic agreement through the platform to directly clarify the loan relationship. Lufax does not earn an interest rate difference.

At present, Lufax is only a test platform.Under the current business model, there is almost no income due to no handling and transaction fees.Lufax is also an Internet platform that “burns money”.If you want to make a profit, there are several ways out: one is to collect transaction fees and transaction fees; the other is to change the one-to-one model, consider packaging loans, and form an interest rate difference with wealth management products; the third is to consider expanding the scope of business, Expand the business model, design a variety of products, etc., to create more profit points and business volume.

At the same time, borrowing needs to apply for the guarantee service provided by the designated guarantee company, and the guarantee company is responsible for guaranteeing the principal and income of the fund lender.

Lufax currently serves groups that cannot be served by banks.Its current only product, "Wenyingan e-loan", requires a minimum investment and loan amount of 1 yuan, while bank wealth management products are subject to the regulatory restrictions of the China Banking Regulatory Commission, requiring a minimum of 10 yuan for sale.

“稳盈安e贷”在2013年8月前年化投资收益率与借款利率都是按人民银行基准贷款利率加成40%。2013年8月，1年期投资利率为8.4%，大于1年至3年期的投资利率为8.61%，平均综合收益率8.61%，投资平均期限接近3年。不到9%的预期投资收益率与同类的P2P网贷平台预期收益率相比，应该属于较低的水平。

Build a guarantee risk control mechanism
After the borrower passes the review of the guarantee company under Ping An Group, it will directly borrow money from the investor, and the two parties will clarify the relationship between the debt and creditor's rights through the electronic loan agreement on the platform.There is a one-to-one correspondence between wealth management products and loans.

Ping An Financing Guarantee (Tianjin) Co., Ltd., a guarantee company under Ping An Group, provides a full guarantee for Wen Ying An e-loan, assumes the risk of loan losses, and charges a certain guarantee fee accordingly.The scope of guarantee includes principal, interest and overdue penalty interest.The proportion of the guarantee fee depends on the personal credit status.Credit review and guarantee business processing is offline.

Doing a good job of risk control and reducing the default rate and bad debt rate is a necessary condition for profitability in the P2P model.

According to insiders of Ping An, the bad debt ratio of Lufax is lower than 0.3%.However, considering that Lufax has been online for a short time, and the loan cycle was mainly three years at that time, most of the loans had not yet matured, and the bad debt rate may not have fully manifested.

Lufax does not assume the risk of bad debts, but transfers the risk to a guarantee company under Ping An.After taking into account the guarantee company’s loan review, default recovery and other operational management costs, a guarantee fee rate of around 2% should not be sufficient to support a default rate greater than 3% (assuming a default loss rate of 60%).

(End of this chapter)