How Installment Payments Really Work: From ABS to Modern Consumer Finance

Installment Payments Overview

Installment payments are not fundamentally different from ordinary payments; the complexity lies in the underlying logic of where the money originates and where it flows.

The financing management system I worked on at a leading financial company handled asset‑backed securities (ABS) by selling used credit limits to banks to obtain cash flow in advance.

Historically, consumer finance began with the ancient practice of “credit farming,” where merchants extended credit to farmers who repaid after harvest, a prototype of modern installment financing.

1. Development Stages of Consumer Finance

1.1. Emerging Period (1985‑2009)

Services were offered mainly by commercial banks and auto‑finance companies to high‑income individuals through credit cards and auto loans.

1.2. Pilot Period (2009‑2013)

The China Banking Regulatory Commission launched pilot programs in four cities, creating licensed consumer finance companies focused on small, fast, unsecured loans.

1.3. Rapid Growth Period (2013‑2016)

Internet expansion and relaxed policies led to a surge of e‑commerce platforms, installment malls, and P2P lenders, dramatically increasing consumer finance activity.

1.4. Regulation Period (2017‑present)

Regulatory actions curbed high‑interest loans, violent collection, and illegal P2P financing, establishing a supervisory framework to protect consumers.

2. Market Operation Models

2.1. Self‑run Model

Financial institutions acquire customers directly through their own channels, approve credit, and bear all risks.

2.2. Assisted Lending Model

Assist‑lending platforms filter customers, perform risk checks, and forward qualified borrowers to licensed financial institutions, sharing part of the risk.

2.3. Joint Lending Model

Consumer finance companies and banks co‑invest in loans according to agreed ratios, sharing both funding sources and risks.

2.4. Credit Enhancement

Insurance or guarantee companies are introduced to transfer risk; they assume repayment obligations if borrowers default, and later handle collections.

3. Industry Structure

The consumer finance ecosystem includes funding parties (banks, trusts, finance companies), credit enhancers (insurance, guarantee firms), channel parties (e‑commerce platforms, apps), anti‑guarantors, credit bureaus, and payment institutions that facilitate fund transfers.

4. Common Consumer Finance Platforms

Major licensed companies such as Zhaolian, Industrial, Ant Group, and others hold assets exceeding 4000 billion RMB, with products like “Huoqi Dai,” “Credit Pay,” and “Huabei” serving diverse consumption scenarios.

5. Product System and Core Process

The end‑to‑end loan process involves user registration, facial verification, credit approval, selection of installment or cash loan, fund disbursement, repayment scheduling, and backend settlement and accounting.

Customer logs in or registers via app or external channel.

Facial recognition and personal information submission; credit limit granted after risk approval.

When consumption occurs, the user chooses installment or cash loan; the appropriate funding party reviews and disburses funds.

Repayment is deducted according to schedule, with early settlement possible.

Backend systems handle clearing, settlement, and accounting.

6. Consumer Finance Product Manager Roles

Product managers are divided into front‑end, channel, funding, core, payment, financial, back‑end, and risk control categories, each responsible for design, integration, risk management, and operational optimization of their respective product lines.