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The Sharing Economy and Collaborative Finance: the Case of P2p Lending in Vietnam

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The Sharing Economy and Collaborative Finance: the Case of P2p Lending in Vietnam THE SHARING ECONOMY AND COLLABORATIVE FINANCE: THE CASE OF P2P LENDING IN VIETNAM Tran Dinh Uyen1 Hoang Ha2 1,2Duy Tan University, Danang, Vietnam Abstract Peer-to-peer Online Lending (P2PO) has received increasing attention over the last years, not only because of its disruptive nature and its disintermediation of nearly all major banking functions, but also because of its rapid growth and expanding breadth of services. This model offers a new way of investing in addition to investing in traditional channels such as banking or financial company. The transaction process is done online, the personal information and terms of mobilization are completely transparent and secure in the best way. The strong development of P2PO also raises a number of issues that require careful attention to promote positive and to limit negative aspects. The research aims to highlight particular aspects of this new business model and to analyze the opportunities and risks for lenders and borrowers in Viet Nam. The research combines qualitative analysis and data survey to serve descriptive statistics about P2PO in Viet Nam. The research show the potential of online peer lending is enormous but the regulators will restrict the Sharing economy model in general and P2PO lending in particular Keywords: Sharing economy, P2P lending, financial innovation, Disintermediation, Fintech INTRODUCTION often on a very large scale, since they are accessible world-wide. Developments in information tech- Known under different names such nology are fundamentally changing many as "Collaborative Consumption", "peer- traditional business models. The advent to-peer exchange", "on-demand eco- of the internet and the consequently nomy", this model is expected to achieve facilitated opportunities for entrepre- sales of 335 billion dollars in 2025 (Price neurial activities has given rise to an waterhouse Coopers, 2015), equivalent to enormous number of new non-traditional revenue of Traditional rental sector. businesses and business models that The model "sharing economy" has encompass the so-called “Sharing Eco- been bringing benefits such as cost nomy”. The business models of the savings, environmental protection, in- Sharing Economy are usually platform- creased economic efficiency, reduced based to match demand and supply. The social waste and excess capacity of increasing use of the internet and its service products. These are the factors possibilities enable online platforms that that make the sharing economy model are easy and cheap to access. Independent have more potential for growth in the of the rest of the design of these non- future Time magazine refers to the traditional businesses, the Sharing Eco- sharing economy as one of ten ideas nomy companies usually provide these which will change the world (Walsh platforms. These, in turn, attract demand, 2011). 84 Jurnal Ekonomi Bisnis Volume 22 No.2, Agustus 2017 The online peer to peer (P2PO) assets with people who would like to rent lending model is one part of the Sharing those assets short-term. This model has Economy. With the upcoming popularity many economic benefits such as having a of online communities, a new way of loan positive impact on economic growth and origination has entered the credit market. welfare, stimu-lating new consumption, It transfers the old idea of personal credits raising producti-vity, and catalyzing indi- into the World Wide Web. In this kind of vidual innovation and entrepreneurship lending model the mediation of financial (Sundararajan 2014). institutions is not required (Galloway Sharing Economy companies have 2009). The decision process of loan significantly increased competition in origination is given into the hand of most markets they are active in. Even in private lenders and borrowers, and the markets that are already competitive, the website like huydong.com offers them a entry of a Sharing Economy company platform to engage with each other. causes an increase in competition that is Borrowers and lenders connect more mostly unparalleled when compared to easily, and demand for consumer loans is traditional business models. The main almost fulfilled all the motivations, bases, reason for this is that Sharing Economy and needs for promoting this model (Lenz companies often do not apply the frame- 2016) work and regulation of the respective The asymmetry between the bene- market to their activities while traditional fits of the shared economy model and the companies do. The motivation for this P2PO platform with the reality in behavior is that they believe that existing, Vietnam in this sector has prompted a pre-Sharing Economy regulation is closer study of P2PO knowledge and inapplicable to Sharing Economy com- awareness, which until now, no detailed panies, especially P2P models. The research has been done yet, to make argument being made is that the supplier recommendations to promote P2PO is in fact an individual, not a company. In platform development in Vietnam. consequence, it is reasoned that a frame- However, the researches about work of a market geared to companies Sharing Economy in general and P2PO could not be applied. Not surprisingly, Lending are very limited. So this paper traditional companies disagree and strive aim to collect and analyze the opinion of to apply framework and regulation to all the financial community about the companies (and in case of Sharing Eco- potential development of the P2PO nomy businesses to individual suppliers) platform in Vietnam and thereby try to in a market in the same way (Demary give several policy recommendations for 2015). their development. Sharing Economy companies work hard to establish trust since it is a About the Sharing Economy prerequisite for conducting business in The Sharing Economy in recent ti- this environment. The most common mes has emerged as a global pheno- avenue of creating trust is a rating system menon. Companies that are emerging in where consumer and supplier rate each this new paradigm as a David are relying other after each transaction (Finley 2013). on internet technology to compete face- What separates peer-to-peer networks to-face with the Goliath giants. These from electronic markets is that the main new companies are actually Web plat- aim is sharing and borrowing, not buying forms or Mobile application that brings (Gansky 2010). together individuals who have underu tilized Uyen, Ha, The Sharing Economy ... 85 Drivers of Sharing Economy Nowadays, they are available in a wide - Technology is the main driver of the range of countries, such as the United Sharing Economy. It makes eco- Kingdom (ZOPA), Germany (SMAVA), nomic activities easier and it makes the United States (PROSPER) or Viet them cheaper by reducing transaction Nam (HUYDONG) costs. Moreover, the customer’s Unlike a commercial bank, the networking is connected easily and platform does not take risks through its conveniently by social network and own contractual positions. Whereas banks digital market. accumulate risks by taking positions on - The advent of the Sharing Economy their balance sheet, platforms decentralize coincides with the global financial the risks by spreading them to their users. crisis. Research conducted by an The concept of private loans is not a expert team working for the new business model and rather the European Commission shows that the traditional way for private persons to loss of trust in traditional companies borrow money without any mediation during the financial crisis was a (Herrero-Lopez 2009). What makes major enabler for the feasibility of online P2P lending a young phenomenon many business models of the Sharing is the transfer into the internet using Economy online P2P lending platforms. - While technology is the main driver of the Sharing Economy, at the same The Motivation of This Model time, an aversion to web-based appli- Behind building such platforms was cations in general or insufficient to circumvent banks as intermediaries, knowledge about their possibilities which may have the following advan- and limitations are obstacles to trust tages: in Sharing Economy businesses - An expensive middleman is replaced (Dervojeda, Verzijl et al. 2013). by a more cost-effective online platform, thus reducing transaction About Peer-To-Peer Online Lending costs (P2PO) - borrowers are given the chance to A category of Sharing Economy present their loan case in much that require a different economic impact detail, providing information to and regulatory discussion is P2PO lenders that banks with their stan- lending. dardized decision processes usually “Peer-to-peer finance will challenge do not take into consideration the nation’s major financial institutions… - The loan generation process is mono-banking culture is on its way out” - transparent and creates a feeling of Andrew Haldane (Bank of England) fairness (all bids visible and traceable “This would mean revolution, online) fundamentally re-shaping the financial - Loans on peer-to-peer lending system” – (Bank of England Governor, platforms are said to generate higher Mark Carney) returns for investors (compared to Peer-to-peer (P2P) lending plat- traditional bank savings) and to be forms are online platforms where cheaper for borrowers. (Klafft 2008) borrowers place requests for loans online and private lenders bid to fund these in an Lending Process auction-like process. Such platforms Online P2P lending platforms differ became available in 2005 and have in the way the borrower’s interest rate is increasingly been used ever since. set. Sites, like prosper.com use an auction 86 Jurnal Ekonomi Bisnis Volume 22 No.2, Agustus 2017 process (Galloway 2009) where bo- performing loans on behalf of lenders to a rrowers are able to set a maximum debt collection agent for a fixed price to interest rate they are willing to pay. recover a mini-mum amount (for exam- If the lending process leads to a ple, 15% to 30%) of the credit claim. fully funded loan-request, some platforms Others have developed automated like prosper.com have implemented litigation and recovery processes for another verification of the borrower’s when loans default.
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