The increasing data richness and accessibility enable both parties of any single transaction to directly assess (to some extent) each other’s credit value. Moreover, with the transactions occurring on the Internet, deals can be closed online.

What big data means for P2P finance in general

A number of forces are at work shaping P2P finance. Big data is, indeed, reforming finance for the everyman, and users are forming collective groups on the Internet. The swift movement of information can significantly reduce its asymmetry and transaction costs, encourage further advancements and upgrades, and speed support by tapping into private capital. These factors have made investment and financing feasible at the individual-to-individual level.

However, CreditEase’s business model is still in dispute. P2P in China is in its infancy and the market is immature. Unfortunately, many organizations have become bankrupt or have closed down. The business model is likely to become a tool for usury or illegal, non-governmental financing. People’s Bank of China vice president Liu Shiyu pointed out at a recent Internet conference that there were moral issues inherent in the P2P platform. After all, it is an unprecedented attempt and a financial revolution driven by Internet financing and big data, which also signals the weaknesses and flaws of traditional financial intermediaries.

Challenges in the era of big data finance

With big data bringing disruptive change to the traditional financial sector, neither conventional financial institutions nor emerging Internet companies can wait to enter this new era in finance. Yet, big data brings both opportunities and challenges. The following highlight a few of these:

Financial structure and business model evolution

Big data will trigger structural changes in the financial markets. Transaction fees and information asymmetry will decrease over time, and financial intermediaries, especially transaction agencies, will gradually lose their value propositions. The emergence of virtual credit-card platforms, in particular, will hasten the extinction of financial intermediaries, and IT intelligence will take the place of some roles now played by traditional service agencies. Meanwhile, big data lowers—to some extent—the access threshold to the financial market. Increasingly more new players are entering the financial sector, and more diversified operation models will emerge. Competition will intensify in the finance sector from both traditional players and strong cross-sector players, such as Alibaba and Tencent. The strong will always be strong. But the weak, if they fail to change the way they compete, will eventually be knocked out of the market.

Lack of facilities, technologies, and talent

With the explosive growth and diversified forms of data, there is an increasingly greater need for data storage capability, making traditional data analysis software redundant. Undoubtedly, big data will bring challenges to businesses’ storage structure, data analysis, and other infrastructure. Big data applications involve data processing, complex big data analysis modeling, and quick extraction of core and effective information. These applications require a lot of talent, with different skill sets. Currently, junior analysts in China are capable of only simple analysis and data description. As applications of big data are further expanded, the talent shortage will become a more pressing issue.

Information security

Finally, there is the issue of security. Massive data storage facilitates data analysis, but if data is lost or damaged, individuals and companies are adversely affected. In 2007, the TJX Companies, a U.S. retail giant, admitted that transaction data valued at more than $40 million was stolen during a hacker attack. In 2010, Hong Kong-based Octopus sold a vast amount of customer data for its own profit. However, it did it in an environment where data protection awareness in China is weak and exposure of private data is rampant on the Internet. In 2011, the personal data and email information of more than 6 million account holders on China’s largest community website and services platform, the China Software Developer Network (known as CSDN), was exposed by hackers, which triggered a chain of secret-spilling events. And last but not least, in 2013, 800,000 personal policies held by the China Life Insurance Company were leaked.

While big data poses promising growth opportunities for various sectors of the financial industry, these examples of security breaches throw a spotlight on the importance of ensuring data security as well.

Preparing for big data disruption

In a new economic era characterized by networks and databases, the convergence of finance and big data seems logical and natural. With big data, the financial industry can quickly acquire useful information from vast resources to support business decisions, and provide more effective precision marketing and risk management to improve business performance and operational efficiency. Yet, while big data brings great opportunities, it also presents new challenges and competition, from Internet companies like Alibaba to P2P lenders that gradually enter the sector to scoop up “white space” opportunities. Financial players that prepare for the disruptive forces of big data, will not only have a better chance for survival but also will be on the leading edge of the China’s new financial industry.