3. The Business Model Analysis of Online Lending Platforms in China

The development of credit rating system for both individuals and companies in China is still far behind compared with the developed countries. P2P online lending, as an imported financing way that was originally created in a society with well-developed credit-rating system, encountered a series of default and bankruptcy events in 2013, as a result of the risky loans to many low-credit-score borrowers and insufficient credit rating system. In China, it is difficult for P2P online lending platforms to maintain a low default rate by simply relying upon the time-consuming individual credit check for each borrower without a society-wise credit rating system. After some trial and error, the business models adopted by P2P online lending platforms in China have evolved over time, and some new business models that promise guarantee of the principals and interests emerged, such as advance payment, guarantee mechanism, and sunk fund provisions. So, in general, the P2P online lending business models can be classified into: no advance payment model, guarantee model, and sunk fund provision model, based on whether the principals of investors is protected.