Dianrong has laid off as many as 2,000 employees amid a regulatory crackdown

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China-based peer-to-peer (P2P) lender Dianrong has laid off as many as 2,000 employees and will shut down 60 of its 90 brick-and-mortar outlets, which helped verify the identities and qualifications of users, according to Bloomberg, citing people familiar with the matter.

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Additionally, the company has been accused of falling behind on wages and severance pay, per a Chinese media outlet cited by TechNode . The company reportedly started shrinking its business around 10 months ago, despite securing a $70 million funding round in January to expand its services, including SMB lending.

China cracked down on the marketplace lending industry last year when itimplemented new rules to clean up the industry. It did so in response to many platforms failing, causing financial struggles for consumers: One woman lost almost $40,000 when a P2P lender terminated its operation, for example. The new rules forced marketplace lenders to register with local authorities to get licensed by June 2018. Additionally, Chinese regulators want to reduce the number of investors and borrowers, and force some lenders to close down their physical shops; this may cause the number of Chinese P2P lenders to drop by 70% this year to as few as 300.
Almost 1,000 P2P platforms have been struggling in China throughout 2018, per Yingcan Group data cited by Bloomberg. China’s aim to clean up the industry is good, as it protects consumers against potentially fraudulent investments. However, the fact that Dianrong, one of the country’s biggest P2P lenders, is struggling in this regulatory environment means that the regulation might also hamper development of established players. Hence, some lenders are also taking measures to diversify their services: Lufax, for instance, wants to introduce other fintech services, like investment services. We might see Dianrong follow suit and expand outside its core business once it’s scaled down its P2P operations.

We’ll likely see other P2P lenders struggling in other markets soon. The UK has already announced changes to P2P lending, including limiting how much retail investors are allowed to invest on a platform, and P2P lenders in the US have also been struggling with making revenue. As such, it’s likely we’ll see P2P lenders in various markets having to diversify their products and seek out more institutional backers for their platforms.

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Source: Business Insider – feedback@businessinsider.com (Lea Nonninger)