A Beginner's Guide to Internet Finance Operations: An Article to Understand 6 Types of Internet Finance Products

I have been working in the wealth management department. I have worked in channel acquisition, fixed income products, insurance products, and also participated in fund, FA and other businesses. The channels I was responsible for contributed 20 billion AUM to the company in 17 years, accounting for 40% of the company's business, but we have always dreamed of accounting for half of the market.

My job content is also all-encompassing. From the initial executor to the later channel operation manager, several major operation modules (activities, users, products, and data) are also daily compulsory courses. This experience has allowed me to step into many pitfalls but has also helped me develop a different perspective on issues. I will share these experiences with you in subsequent articles.

Let’s stop here and formally explain the outline of this “Introduction to Internet Finance Operations”:

1. Know Your Product : An article to understand 6 types of mutual financial products
2. Know Your Customer: Say goodbye to the user portraits of "you think" and "should be"
3. 8 unavoidable "hidden rules" in mutual finance operations
4. Getting Started Guide to Mutual Finance Operations - Activities
5. Getting Started Guide to Mutual Finance Operations - User Edition
6. Getting Started Guide to Mutual Finance Operations - Data
7. Getting Started Guide to Mutual Finance Operations - Products
8. What is the difference between normal operation and excellent operation? Cognitive upgrade
9. The road is simple, don't forget your original intention
10. Recommended books

Flag soldier put it here first, please help supervise, haha~

In the first chapter, I will briefly talk about Internet finance .

Many people like to define Internet finance. I believe that you can find a lot of information about this on the Internet, so I will not go into details. Next, I will talk about my perspective:

1. How to define Internet finance?

First, let’s define finance. The essence of all finance is risk and return, whether it is banking, insurance, or securities .

What is risk compensation?

That is, how much compensation do you want for every dollar of risk you take.

How does the bank set the interest rate when lending you money, 7% or 18%?

This is a comprehensive assessment of your occupation, income, historical credit record, and whether you have real estate mortgage to assess the probability that the money loaned to you will not be repaid, and how much money you will need in compensation to ensure that you do not lose money.

How much does an insurance company charge you for buying a critical illness insurance?

The risk price corresponding to the probability of payment at different ages and health status is also calculated based on the life table.

Therefore, no matter how the form of financial business changes, online or offline, the essence of risk compensation returns will not change.

Let’s talk about Internet finance. Although the essence of finance will not change, will the addition of the Internet change the scope of risk, risk pricing logic, and the cost of measuring risk?

From this perspective, I divide Internet finance into three categories:

1. Without changing the risk-return ratio, the Internet is simply used as a channel for acquiring customers, directing traffic, and selling. Typical representatives include: various financial supermarkets, Ping An Auto Insurance official website, and Tiantian Fund Network.
2. The risks generated on the Internet are included in the risk scope, and new products are born; typical representatives include Taobao return insurance, Alipay account security insurance, etc. These products are all designed to reduce the risks generated on the Internet.
3. Integrate Internet technology into risk pricing logic; include online shopping, social networking , credit cards, and behavioral trajectory data into risk assessment factors, and use big data and cloud computing to greatly improve measurement efficiency and reduce risk measurement costs; imagine that Huabei can calculate the credit scores of 100,000 people in 1 second, which is unthinkable for offline banks. Typical representatives: Baifa 100 Index Fund, Alipay Huabei, Ping An Sports Insurance, and Yirendai Express Loan.

In addition, in addition to these three types of businesses, there are other infrastructure and channel businesses, including payment, credit reporting, information, etc. This type of business does not involve any operating risks and mainly serves as infrastructure to support the above three types of business.

2. 6 major Internet financial services

1. Internet Payment

Internet payment is currently the earliest developed, most mature and most concentrated sector in the Internet finance industry. Payment itself is not considered a financial business, but because of its high frequency and small amount, its ability to accumulate credit data, and its ease in directing traffic to other financial businesses, it has become a focus of layout for major Internet giants.

A number of Internet giants including BAT J and TMD have entered the payment field through acquisitions. Currently, Alipay and WeChat are still the dominant players (see the figure below for details).

(1) Business logic

(2) Profit model

The back-end charges merchants handling fees and deposit interest on reserve funds. Due to fierce competition and continuously decreasing rates, the income from payment business barely covers the costs and profitability is relatively weak.

(3) Core business capabilities

Scene embedding capability, system concurrency efficiency and stability, and big data cleaning and mining.

(4) Typical representatives

Alipay, WeChat Pay .

1. Internet lending

The lending business is currently the most profitable area in the market, with the most player types, the highest requirements on company capabilities, and the most chaotic industry competition.

The lending business itself is not complicated. It is a business of raising funds and lending them to borrowers, earning the interest rate difference in the middle. To borrow a phrase, "We don't produce money, we just transport money."

The huge profits will inevitably attract all kinds of players to join, including banks, consumer finance companies, P2P , small loan companies, and Internet companies, and various models are emerging one after another.

The following figure simply classifies and describes typical business models:

But Internet lending is very difficult to do in the current market environment.

On the one hand, the lack of an overall domestic credit reporting system makes personal credit risk assessment and data sharing very difficult, which leads to serious bad debts and multiple borrowings.

On the other hand, it is very difficult to assess a borrower's ability and willingness to repay through the Internet, and false loan frauds must be prevented at all times; in addition, the Internet's collection of debts from defaulting and overdue users is beyond the reach of the Internet. All these make lending a business that looks attractive but is full of pitfalls.

• Profit model: very clear, profit = borrowing interest rate - capital cost - bad debt - operating cost.
• Core business capabilities: big data risk control, low-cost capital acquisition, and anti-fraud.
• Typical representatives: Ant Credit, WeBank, Yirendai, and LexinFinance.

1. Internet Securities

Internet securities is a relatively quiet area in the current market with fewer players - this mainly refers to brokerage business, which has strong regulatory attributes and must be licensed, which greatly hinders the possibility of innovation.

Currently, there are four main types of businesses in the market:

1. Account opening and trading: In recent years, securities firms have been engaged in a price war on fees, resulting in less and less profits from brokerage business, and most securities firms lack motivation for brokerage business. Only Guotai Junan and Huatai have developed Internet businesses, and they are mainly engaged in online investment education and sales of asset management products.
2. Information platform: This type of platform generally starts with information and data, cooperates with securities companies to enter the transaction chain, and then reversely acquires licenses or launches fixed income, fund, and insurance financial products, taking a comprehensive financial management route;
3. Assisted decision making: Most of these companies take the black technology route, focusing on intelligent investment research, intelligent strategies, and intelligent investment consulting. The future trend is also comprehensive wealth management.
4. Back-end system: belongs to TO B business, providing software services to financial institutions or service platforms.

• Profit model: Securities firms make profits from commissions and asset management; the other three categories make profits from commissions and service fees.
• Core business capabilities: licenses, trading systems, and information.
• Typical representatives: Guotai Junan, Oriental Fortune, Tiger Brokers, and Flush.

1. Internet Insurance

Internet insurance is a field that is increasingly giving people surprises, and this year has been particularly lively: hot products such as Webao Filial Piety Fund and Alipay Mutual Insurance have sparked a wave of heated discussion every time they were launched.

Over the past decade, traditional insurance products and sales have been rejected and criticized by many people, which has left more room for innovation and improvement in Internet insurance.

Players in the market can be roughly divided into four categories: insurance companies, insurance intermediaries, traffic giants, and business development tools . Each company’s gameplay varies depending on their role.

Insurance companies mainly rely on their license advantages to innovate products, especially Internet insurance companies led by ZhongAn; insurance intermediaries are positioned as sales functions, so they mainly focus on product selection, demand matching, reverse customization with insurance companies, and cooperation and embedding with traffic platforms.

Traffic giants have gradually extended their traffic advantages from scene-bundling to customized products and license acquisition; business development tools are positioned to serve offline insurance salesmen, binding salesmen through tools and earning the difference between insurance company rebates and sales commissions.

• Profit model: Except for insurance companies, the other three categories mainly make profits through commissions, while insurance companies make profits through premiums and investments .
• Core business capabilities: product innovation, demand stimulation, and traffic acquisition.
• Typical representatives: ZhongAn, Ant Insurance, WeSure, Huize.com, and iCloud Insurance.

1. Internet Fund

Internet funds are an area that is rarely mentioned, but because of the existence of Yu'ebao, we cannot ignore it.

As a popular investment product, funds have only a 20-year history. After 2000, they have been developing steadily until the birth of Yu'e Bao, which pushed this trend to the sky. Through "T+0 advance payment + third-party payment", a new era of financial management for all people was created (as shown in the figure below).

Fund products are typical asset management products, and their returns depend entirely on the fund manager's operations. What the Internet can bring to funds are nothing more than auxiliary functions such as trading, market information, and community communication.

Therefore, in addition to the Yu'ebao model, Internet fund innovation is concentrated in the direction of community information and intelligent quantification. Black technologies such as quantitative fund selection, intelligent fixed investment, and intelligent position adjustment are constantly emerging, such as Snowball's 28 rotation, Toumi RA, and Capricorn Smart Investment.

Since fund performance requires relatively long observation, the effectiveness of this model remains to be seen:

• Profit model: Transaction commission + cross-selling other financial products
• Core business capabilities: quantitative investment talents , traffic acquisition, agency sales or investment advisory licenses
• Typical representatives: Tiantian Fund, Ant Fortune , Snowball, Toumi RA

1. Internet Wealth Management

Internet wealth management is a relatively new field both at home and abroad, and it is also a huge blue ocean. Traditional wealth management is already quite mature in the United States. It is similar to service industries such as law and psychological counseling, and mainly relies on providing asset allocation advice and charging service fees.

It was introduced into China from foreign private banks in the past 10 years, and later banks, securities companies, trusts, independent third parties and other entities joined in. This type of traditional wealth management mainly serves high-net-worth individuals with personal assets of more than 6 million yuan. It mainly relies on selling products and collecting commissions, which is very different from foreign wealth management.

Internet wealth management moves wealth management online, replacing traditional wealth managers with robots and smart investment advisors. Users can enjoy wealth management services simply through mobile phone apps .

This not only lowers the service threshold and saves labor costs, but also uses machine learning to replicate the service capabilities that a financial planner may need decades to develop at zero loss on a large scale. This is also the most attractive aspect of technology.

Currently, the player models in the online wealth management field are basically the same, with the only difference being on the asset side. The assets of banking players basically come from banks, private equity players focus on private equity products, and independent third parties wholesale various assets from various financial institutions. However, they generally have not gotten rid of the old path of selling products, and there are even a large number of fake platforms that commit illegal fraud under the name of wealth management.

In the long run: wealth management will eventually return to its service essence and embark on the path of independence, objectivity and business trust.

(1) Business logic

(2) Profit model

Product commission + investment income of own assets.

(3) Core business capabilities

Wealth management talent, product selection, and traffic acquisition.

(4) Typical representatives

Lufax , Noah Wealth, and CreditEase Wealth.

3. Personal Outlook

Internet finance has only been around for a few short years, but it has already brought about earth-shaking changes in our lives. This is the power of innovation, and this is also my belief.

My ideal finance is warm. It is definitely not just cold numbers or unpredictable ups and downs. It should be a young person’s dream, a couple’s yearning for the future, a father’s ardent hope, and a family’s sharing.

Our mission is to bring finance out of tall skyscrapers and into the streets and alleys of everyone's life, as well as into their daily lives.

My ideal finance is simple and inclusive, so that everyone can access it more equally. Scan the QR code to pay anytime and anywhere, borrow money based on your credit instead of the property deed, and no longer have to queue for hours just to change your bank card password. These small changes are making a difference in the world.

This is my financial ideal. Its mission is not to subvert anyone, as that would be too naive. Its existence is only to make the lives of every ordinary person better.

So we also look forward to more people joining this industry, let us work hard together!

Source: Beijing Soldier