84 similar cases happened in just June of this year. The number increased to 252 in July according to P2P Eye analysis. The August number has reached to 63 and shows no signs of stopping. In 62% of the cases, investors have no method to contact the platform. 22% of the platforms stop supporting cash withdrawal. Others either closed their business or just ran away. In many of these cases, there seems to be very little chance that investors will be able to get their money back.
Misfortune is not just with individual investors but also with entire companies. On August 1st, Router company Hiwifi announced that they were extremely short on capital and at the edge of bankruptcy. Their sudden lack of cash was caused by their business partner, P2P platform iCaifu, which stopped running suddenly with an unpaid balance of RMB 298 million. On the same day in Beijing, 168 Lin Jia Convenience stores shut in one night still owinng millions to their vendors. Their only investor, P2P platform Shanghai Shanlin Finance, was found to be illegally fund-raising in April 2018, causing Lin Jia’s accounts to be frozen.
Though tough P2P regulations were issued in 2016 and unqualified platforms closed, the industry still grew. By the end of December 2015, there were 1,202 problematic platforms, two years later, this number increased to 2,377. The existing industry is being checked by regulation, but is still big and profitable, which attracts new players and speculators. To develop more business in such a competitive market, P2Ps have lowered their lending standards. With just a mobile number and an id photo, a person can get cash in 3 minutes without collateral. New regulations not only set the range of interest rate to protect borrowers, but also specified that platforms shall not conduct violent debt collections. More 'deadbeats' showed up as platforms loosen the borrowing qualifications. These groups don’t pay back on purpose, as well as spread negative news, trying to drag down the platform so they don’t need to return the money at all.
To deal with such intentional actions, the Internet Finance Association has required all platforms to report deadbeats borrowers and will include the information in the national individual credit system. At the same time, so many cases show that platforms’ lack of asset management and risk control capability are their biggest weaknesses. With inferior ability to manage their cash flow, once investors see increasing risk and withdraw their money at the same time, platform cannot deal with the redemption pressure and can fail.
How to prevent this kind of fraud is a big challenge for regulators. The industry seemed to be cleaning up, but the recent issues have shown that there is a lot more to do.