Five major trends in consumer finance in 2025: from “asset shortage” to AI revolution

As consumer finance comes to an end in 2024, it is of great significance to practitioners and followers to review the development of the industry during this year and look forward to the prospects for 2025.

1. Analysis of the characteristics of the consumer finance industry in 2024

1. Credit expansion is cold: an unexpected brake.

In 2024, affected by factors such as weak external demand, weak real estate repair, and expanded profit decline of industrial enterprises, the willingness to invest in the manufacturing industry will be sluggish, and the downward pressure on the economy will be significant. The decline in residents ‘income has caused the overall consumption growth rate to hover low, resulting in a continued contraction in credit demand. According to the latest statistics on loan investment of financial institutions from the People’s Bank of China, the balance of consumer loans excluding personal housing loans in the first three quarters reached 20.43 trillion yuan, a year-on-year increase of 5.8%. The growth rate dropped by 3.6 percentage points compared with the same period in 2023, which was the lowest in the past five years. At the lowest level, the shortage of consumer loan assets has not eased in the short term.

(2) Breakthrough in service coverage: a silent sinking revolution”

Narrow consumer finance cash loans mainly serve groups that are difficult to cover by traditional finance. These groups have poor income stability, low risk resistance, and high credit risks. In 2024, the industry’s federal learning technology implementation rate will be 65%, the efficiency of government data invocation will increase by 300%, and the proportion of 24%+ interest-rate products will drop to 27%(halving from the peak in 2022). As the coverage of consumer finance expands, it will reflect the continuous advancement and deepening of inclusive financial services.

(3) Dynamic adjustment of the market structure: the song of ice and fire under the head effect”

As industry growth slows down, the overall balance sheet fluctuations of the consumer finance industry intensify, and the profits of some consumer finance companies have retreated. Commercial banks and consumer finance companies have made efforts in the existing market. The supply of funds has increased while the growth rate of consumer credit has slowed down. The voice of Internet traffic platforms has increased, and the price of cooperation funds has been continuously lowered. Relying on its traffic advantages, Internet traffic platforms partially lend money through their own small loan companies or consumer finance companies, and the rest use lending aid or joint loans to cooperate with financial institutions. Some platforms promote customers based on the data + model capabilities of the self-operated ecosystem. Conduct fine stratification and pre-screening, and some platforms only simply stratify and pre-screen customers based on customers ‘age, region, etc.

As traffic enters the era of stock games, financial institutions will conduct hierarchical management and control of Internet platforms, considering factors including asset size, consumer rights protection, self-operated scenarios, customer pricing, asset quality, compliance risks, profitability, company reputation, and data Governance, information technology capabilities and data security.

1. Internet traffic platform:

Ecological closed-loop platform

Including Ant Group, Jingdong Technology, Du Xiaoman, Meituan, Byte, Tencent, etc., the loan balance is 2,000 -1 trillion yuan +. These platforms have strong advantages in their own traffic and have significant advantages in asset scale, brand influence and customer base. They are often able to provide loans at lower interest rates, attracting large numbers of customers, while maintaining low risk levels.

Vertical scene platform

Including Didi Financial, Ctrip Financial, Xiaomi, etc., the loan balance is between 20 billion and 50 billion yuan. These platforms have stable own traffic in vertical scenarios, and customer operations are also launched early, pricing customers within 24%, while maintaining platform risks controllable.

Flow Technology Platform

Including Qifu, Xinyi, Lexin, Lingyue, Xiaoying, Shuhe, Jiayin Jinke, Orange Digital, etc., the loan balance is between 30 billion and 100 billion yuan. We rely on information investment, API cooperation, and joint risk control of technology export to obtain customers. At the same time, we rely on the customer membership system and dual-financing model to increase the pricing customer base, so that the internal rate of return (IRR) to customers exceeds 24%.

Traffic aggregation platform

Including Weixin, Xinfei, Weicai, Zhongan, CreditEase, Sweet Orange, etc., the loan balance is less than 30 billion yuan, and the comprehensive pricing is 24-36%. The platform traffic cost is relatively high, mainly relying on high pricing to cover high risks and high traffic cost.

Segment and deep cultivation platform

Including OPPO Finance, vivo Finance, Wailai Digital Science, Xiaohua Wallet, Tongcheng Finance, Dewu, etc., the loan balance is less than 10 billion yuan. Some of these Internet platforms also have their own ecological traffic. Financial business is only a supplement to customer services or started late, and its expansion is relatively stable.

2. The awakening era of financial institutions”

City Commercial Bank:Heads include Bank of Ningbo, Bank of Jiangsu, Bank of Nanjing, etc., and regional urban commercial banks include Bank of Hebei, Bank of Kunlun, Bank of Qingdao, etc. The head effect of urban commercial banks in Jiangsu and Zhejiang regions is obvious. Due to the requirements of new regulatory regulations, some urban commercial banks are also strengthening their independent risk control capabilities, reducing the scale of cooperative loans and reducing their dependence on cooperative institutions.

Private banks:The heads include Weizhong Bank, Online Merchant Bank, Sushang Bank, etc. Among them, Sushang Bank has invested more than 460 billion yuan in personal consumption loans and served more than 17 million customers. Private banks below the waist have been divided, and some equity changes have been controlled by state-owned assets.

Consumer finance companies:The head includes Ant Consumer Finance, China Merchants Alliance Consumer Finance, Industrial Consumer Finance, etc. Restricted by the “Measures for the Management of Consumer Finance Companies”, consumer finance companies face the requirements of paying in capital of more than 1 billion yuan and holding shares of more than 50% of the main investors. Many companies have increased their capital and shares, such as Hunan Changyin 58 Consumer Finance, CITIC Consumer Finance, Chengdu Jincheng Consumer Finance, etc., South Bank of China France and Pakistan increased their capital to 5.215 billion yuan, and Haier Consumer Finance increased its capital by 2.09 billion yuan. Currently, there are still 9 companies that have not reached the threshold of 1 billion yuan. Capital increase is their key task in the future. In addition, the reorganization of Jiexin Consumer Finance was implemented, and the Jingdong subsidiary became the controlling shareholder.

2. Evolution of regulatory policies: from framework gaps to capacity building”

In 2024, the regulatory authorities issued a number of regulatory notices in the field of consumer finance, mainly reflecting three regulatory trends.

(1) Promote the development of industry norms

Commercial banks:The Financial Supervision Bureau issued the “Measures for the Management of Personal Loans” in February 2024. This management method is a comprehensive regulation for the personal loan business of financial institutions. It once again emphasizes the requirements for commercial banks: (1) implement a full process of pre-loan and in-loan, self-management after loan;(2) standardize the marketing and publicity behaviors of cooperative institutions;(3) ensure transparency in interest collection; and (4) strictly prohibit improper collection. At the same time, commercial banks are required to comply with the provisions of the “Internet Loan Management Measures” when conducting online business.

Consumer finance companies:In order to promote consumer finance companies to improve corporate governance, strengthen risk management, and protect consumer rights and interests, the “Measures for the Management of Consumer Finance Companies” was issued in March 2024. The measures clarify that the basic businesses and special businesses of consumer finance companies include the issuance of individuals. Consumer loans, accepting deposits from shareholders and their subsidiaries, borrowing from financial institutions, issuing non-capital bonds, etc.; It is required to build a fraud risk prevention and control system, improve anti-fraud models, and ensure that the borrower’s identity data is true and effective; follow the principle of interest rate marketization, establish a risk pricing mechanism, and reasonably determine the level of consumer loan interest rates; the maximum loan credit line for borrowers shall not exceed RMB 200,000 yuan;(5) Strengthen corporate governance requirements, clarify shareholder responsibilities, and improve corporate governance levels.

Microloan Company:In order to guide the standardized development of microfinance companies and promote the sustainable development of microfinance companies, in August 2024, the “Interim Measures for the Supervision and Administration of Microloan Companies” was issued, which clarified that microfinance companies can raise funds through borrowing from banks and shareholders., bond issuance and asset securitization; all interest and expenses need to be combined into a comprehensive real interest rate and converted into an adult form, and no interest, handling fees, etc. shall be deducted first; Conduct list management of cooperation institutions to reduce cooperation risks.

(2) Strengthen the management of Internet loan assistance

In September 2024, media reported that a draft for comments on the “Notice on Strengthening the Management of Commercial Banks ‘Internet Loan Assistance Business” was circulated in the industry. The key points of the notice mainly include:

Service fee:The current settlement of loan assistance service fees is based on the actual interest fees collected by financial institutions in the current month. The notice requires commercial banks to pay service fees to lending agencies based on the interest received after each loan is settled, and the proportion is controlled within 30%. The aim is to tilt the overall profitability of customers towards financial institutions, thereby promoting financial institutions to have the motivation to further deepen their independent data acquisition, independent brand management, independent contract signing, independent customer acquisition and independent risk control.

Pricing transparency:Financial institutions and guarantee credit enhancement institutions are required to agree that the guarantee credit enhancement rate shall not be higher than the loan interest rate. Lending aid institutions are prohibited from charging unreasonable fees such as consulting fees and consulting fees, and promote transparent customer pricing to support the development of inclusive finance. The dual-financing model will face great challenges, and the profitability of small and medium-sized lending platforms will face huge challenges.

List management:It is required to implement list-based management and headquarter-level access approval for lending aid and guarantee credit enhancement institutions, and conduct quality inspections every six months. The purpose is to prevent potential risks of lending aid business. Subsequent small and medium-sized platforms and credit enhancement institutions will face greater adjustment pressure.

(3) Strengthen the protection of consumer rights and interests

In June 2024, the State Financial Supervision Administration, the People’s Bank of China, and the China Securities Regulatory Commission jointly issued the “Announcement on Work Arrangements for the Protection of Financial Consumer Rights and Interests”, marking that my country’s financial consumer rights protection has entered a new era of large-scale consumer protection, from information disclosure, Risk warnings, marketing publicity, to customer information collection and use and other aspects are standardized.

On December 20, 2024, the State Financial Supervision and Administration revised and issued the “Measures for the Supervision and Rating of Consumer Finance Companies”, which requires consumer finance companies to increase the rating weight of consumer finance companies by 15%, and urges consumer finance companies to improve service quality and consumption. Experience, strengthen the protection of consumer rights and interests, and consolidate the main responsibility of consumer finance companies.

3. Outlook for 2025: Anchoring certainty amid uncertainty

(1) Monetary policy helps optimize the financing environment

The central bank’s 2025 work meeting clearly stated that it will implement a moderately loose monetary policy, reduce reserve rates and interest rates in a timely manner, maintain sufficient liquidity, reduce social financing costs, and promote reasonable growth of money and credit. Loose monetary policy is expected to reduce the cost of personal loans and stimulate demand for consumer loans such as home purchase, car purchase, education, and tourism. However, it is also necessary to see that due to the uncertainty of macroeconomic recovery and the lag in corporate profit growth, the pressure on commercial banks on net interest margins has allowed commercial banks to start optimizing asset structures and increasing asset returns, thereby gradually increasing the financial cooperation price of Internet traffic platforms.

(2) Financial institutions focus on self-reliance and practice hard internal skills

The self-operated consumer finance business emphasizes independent customer acquisition, independent operation and independent risk control. Under the current lending assistance model, the income of financial institutions relies on the flow platform, and asset stability and security are crucial. Therefore, many financial institutions have responded to the call of supervision and made every effort to build self-employed capabilities, covering aspects such as capital, customer acquisition, risk and cost control, and system, manpower, and operation construction. For example, Sushang Bank has created a self-operated product upgrade loan brand, vigorously introduced risk control and scientific and technological talents, increased data procurement costs and self-research core, risk control and credit systems, and became a benchmark in the private banking industry. It is expected that more financial institutions will increase their proportion of proprietary assets in 2025.

(3) Technical variables: AI reconstructs the rules of the game

As DeepSeek’s domestic large model supports open source, calls costs are significantly reduced, and the reasoning process is announced, the threshold for AI’s use in the financial industry has been further reduced and risk interpretation has been improved. In the short term, AI will become an important efficiency improvement tool. For example, financial institutions use AI to empower intelligent customer service, the replacement rate of intelligent customer service will increase to 70%, labor costs will decrease by 25%, and marketing messages, credit reports and transaction documents will be generated. Analyze data to provide decision support; In the medium term, AI and existing risk decision-making systems can be integrated to build a more intelligent automatic decision-making system. The decision-making system will not only rely on traditional statistical models, but also use a large model engine to achieve model interpretation, real-time feedback and policy adjustment.

4. Non-performing assets: becoming a new blue ocean

The scale of personal non-performing loans has grown rapidly and has become a new blue ocean. In 2024, 1041 non-performing loan transfers were listed, and the scale of personal non-performing loans sold throughout the year reached 158.35 billion yuan, a year-on-year increase of 64%, accounting for nearly 70% of the total non-performing loan turnover. According to data for the fourth quarter of 2024, personal consumption loans accounted for the highest proportion, accounting for 66%; followed by personal business loans and credit card overdrafts. Against the background of the surge in the growth rate of personal non-performing loans, extracting profits from the recovery of non-performing loans has become a new goal of many financial institutions, and industry differentiation is expected to further intensify.

(5) Protection of consumer rights and interests becomes the core task

The protection of consumer rights and interests is related to corporate reputation and operations. Customer complaints and fines prompt companies to take positive actions to ensure that consumer insurance issues are resolved in a timely manner through measures such as sending consumer specialists to cooperation platforms and establishing consumer protection committees. In the future, the effectiveness of consumer insurance work will be closely linked to the growth of loan scale and become a key consideration for industry development.

In short, consumer finance is in a period of rapid change and innovation. The level of intelligence in scenario services, intelligent risk control, user operations and rights protection continues to improve. Industry participants need to accurately grasp trends, respond to challenges, and achieve sustainable development. [Written by Chen Xuetao]