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Extension of Industrial Chain of Internet Finance based on Third-party Payment

As internet finance changes quickly due to innovations,role of third-party payment as basis and footstone of innovation isindispensable. Hit of Yu E Bao and launch of Licaitong connote that industrialchain of the Internet finance is being extended and expanded in the pathway oftapping and playing of functions of third-party payment.

According to information released by Alipay and Tianhong Fund, up to January 15, 2014, the scale of Tianhong Fund Yu E Bao had exceeded RMB 250 billion and number of customers has exceeded 49 million. From the beginning when it was doubted to the time it was recognized by investors, expansion of scale of Yu E Bao revealed the potential of third-party payment’s role as payment channel and marketing channel. Similarly, Licaitong, innovated on the WeChat payment platform, was launched recently. The interface of Licaitong clearly indicates that “the yield is more than 16 times of interest of due on demand” in terms of currency fund invested by WeChat and China Asset Management. In the service agreement, Tenpay specified that it had covered insurance in the insurance company (Fangxinbao) against capital lost suffered by investors occurred during use of services of Licaitong.


Third-party payment enterprises will witness precipitation of large amount of capital, and it is predicable that as a consequence, the war of financial management will continue. However, Alipay differs from WeChat Payment in that the base of Alipay is the capital flows from e-commerce, and WeChat cut in the industry as a social relationship tool. It is undoubted that other third-party payment companies will imitate and follow such methods and enter the market with their advantages. For example, YeePay once indicated that they would launch merchant-oriented customer comprehensive financial management services, which would make it enterprise-oriented Yu E Bao.


It is generally believed in this industry that internet finance originates from third-party payment, and the latter may be able to make up the inherent defects of development of internet finance by virtue of the advantages of closed operation of capital, such as prevention of P2P risks. This is because credit analysis and evaluation may be carried out based on the large quantity of information flow and data accumulated by third-party payment businesses, and the operation of capital is closed that separation of accounts of P2P platforms and accounts of customers can be realized, which created a risk isolation method for increase of customers’ capital.


Currently, several third-party payment companies, such as YeePay, have launched P2P fund trusteeship platform. As the scale of internet finance businesses grow rapidly, it is not neglectable that the short slab of risk control represented by P2P credit brings a lot of hidden worries to this industry. In the context of lack of consciousness of risk of investors and credit consciousness of borrowers in China, bankruptcy of P2P platforms and P2P and running-away event are very common, and it is very difficult for P2P platforms to resolve such weak link all on their own, and it is not easy to avoid the occurrence of moral hazard, objection to term mismatch and illegal fund-raising only relying on industrial self-discipline.


However, fund trusteeship adopted by third-party payment is promising to make up the short slab of internet debt of P2P platforms. Firstly, many third-party payment enterprises provide payment and financial services solution vertical to relevant industries, and have accumulated fund trusteeship technologies and experience related to tourism, aviation, FMCG, entertainment and other industries. Secondly, after trusting of customers’ funds, the P2P platforms will isolate it from the capitals of the platform, and depositing and withdrawing of capitals of the borrowers can be operated by the third-party payment platform according to their orders, so embezzlement risk can be effective controlled in this way. Thirdly, more than 250 third-party payment enterprises have obtained payment licenses, and they are in possession of standard operation and management, but faced with high default cost. All these factors determine that third-party fund trusteeship maybe an effective method for preventing debt risks of P2P platforms.


Therefore, somebody compares third-party payment to the main chain of innovation of internet finance, and new internet finance pattern is possible to be created in terms of each joints. This is because that from the perspective of “gene” giving birth to internet finance, the guaranteed payment pattern represented by Alipay came into being in order to avoid business risks, and payment pattern of YeePay and other industries can be considered as extension of traditional financial chain and enjoy credit intermediary, account management, capital flow management and other advantages. All these factors are necessary to each internet financial transaction.


In addition to financial management and fund trusteeship, data flows and information flows, directly brought by third-party payment as a payment channel, will be the “treasury” for cloud computing and big data digging. Tang Bin, founder of YeePay once disclosed that investment management, factoring, and financial leasing would be their businesses, and they would provide vertical industries-oriented supply chain financing. Payment businesses based on Alipay has been expanded to aviation, insurance, tourism, etc. and business information related to the whole industrial chain has been accumulated, so credits of enterprises engaged in the industrial chain can be assessed reasonably and effectively. Resources and business data of these merchants will provide basis for digging of their credits for resolving their financing and financial management demands. What is more important is that third-party payment will result in electronization of many industries, so the transparency of information will be increased. The costs will be decreased and bottleneck problems will be solved if banks cooperate with third-party payment enterprises to provide credit grating services for upstream and downstream enterprises in the industrial chain. In addition, the risks can be controlled by closed operation of the capital.   


After almost a year of explosive growth, the types of businesses of internet finance became distinct gradually. Discussions have been conducted on whether internet finance will promote or overturn traditional finance industry, and the consensus that it is complementary to traditional finance industry and the two industries will integrate. This is evidenced by the cooperation between Alibaba and Tianhong Fund, CMBC (600016) and other financial institutes. Internet finance cannot substantially change the essence and fundamental profit models of finance industry, and it must follow rules of finance. Third-party payment, as a footstone, will play a decisive role in development prospect and tendency of internet finance.