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In 2019, the number of online peer-to-peer lending platforms in China was ***. The industry experienced a boom phase in which the number of platforms increased significantly over three years. After state-regulators had imposed restrictions on the industry in 2015, many platforms closed.

Cutting out the middleman

Peer-to-peer (P2P) lending platforms connect investors and borrowers directly without a financial institution as an intermediary. Typically, the platform assigns a potential borrower to a risk group that reflects the investment risk. Investors can then choose the risk group that meets their expectation of risk and return on investment.

The success of the platforms originated from a lack of regulation of the industry and low interest rates offered to depositors at commercial banks. The unregulated market allowed many platforms to open without being subjected to sufficient oversight or being obligated to provide adequate consumer protection. As a result, the number of platforms increased quickly and, in an environment where bank investment was not even offsetting inflation, the significantly higher returns on investment became a very attractive alternative for Chinese savers.

Underregulation, deception, and turmoil

The rapid development of the peer-to-peer lending industry and a lack of regulation allowed many dubious platform operators to take advantage of consumers. Potential investors were lured in with promises of high returns on investment. However, in many cases, the platforms were mismanaged or outright criminal. The most common issue being that a platform operator would simply disappear along with any investments made on the platform. This left many investors in despair and led to a wave of protests directed at the authorities who were unable to protect them.

As a response, the government announced the introduction of regulatory measures in 2015. Among other regulations, the new measures required operators to deposit funds at a commercial bank and register their platform with their relevant financial regulatory authority. As a result, most platforms stopped operation, reducing the total number of platforms from in 2015 to *** in 2019.