If I Were in Charge, Xiang Hu Bao Would Have Had a 99 Percent Chance of Success

I was deeply saddened to see Xiang Hu Bao fall. Years ago I posted on WeChat Moments that Xiang Hu Bao would prove the greatness of KangAi Commune. Now it fell before its large-scale problems broke out, and with nothing to compare against, KangAi Commune can no longer show just how "great" it is, nor how much effort we put into the healthy development of mutual aid and how much incomprehension we endured. So I am thoroughly disappointed by Xiang Hu Bao's collapse. And it could have made mutual aid a tool for benefiting society on a par with Alipay.

The failure of Xiang Hu Bao earns neither my sympathy nor my respect. As for the reason for the shutdown, the usual suggestions are that the regulators were cracking down on Alibaba, or that interest groups intervened. In my view it is the opposite: the regulators' shutdown saved Alipay, because if Xiang Hu Bao had kept operating, its own problems would have flooded over and swallowed Alipay. Internal causes come first; Xiang Hu Bao's tactics and strategy were, from start to finish, rather crude and clumsy — it single-handedly brought down such a good model. And Alipay is almost one of the two companies in China most capable of making this model succeed.

As to why Xiang Hu Bao performed so poorly in my view, I speculate that someone wanted to rise quickly, or wanted to grow so fast as to force the regulators' hand — but neither is a standard befitting a company of Alipay's stature. It was, in its entirety, the startup model of a grassroots entrepreneurial team in the early internet era: reckless and irresponsible, lacking any holistic thinking about the industry, eager to win, hungry for quick results and hungry for fame.

There is much I want to criticize about Xiang Hu Bao, but I hardly know where to begin. So I will start from what I consider the correct strategy and tactics, and describe how, if I were the person in charge of Xiang Hu Bao, I would jump from Alipay's shoulders.

At the Tactical Level

1. Limit admissions and control the speed. Explosive growth is the biggest landmine in mutual aid. Grow 100 million users in a year, and how many claims will there be within that year? Will 100 million people being debited every month feel nothing? Can customer service and review be trained and deployed in time? When contributions jump straight to such a high level, can users adapt? Xiang Hu Bao should have set a reasonable growth curve — capping registrations per age band per day, for example. Imagine if Xiang Hu Bao had taken ten or twenty years to build 100 million mutual aid users: what would the result have been? One can picture how, over those ten years, the platform's problems would have surfaced and been solved one by one, the overall quality of users would have been very high, contributions would have been very low and very smooth, the effect of the mutual aid model would have been displayed perfectly, and public acceptance would have been far higher.

This is not hunger marketing, though objectively it has that effect too. It has an additional benefit: it gives users an incentive to learn how Xiang Hu Bao works, which serves the purpose of user education.

An invitation-based system could also be considered.

The core point is this: make sure that the people who join understand what mutual aid is. Based on my understanding of users, of Xiang Hu Bao's claimed 100 million users it would already have been good if 10 million knew what they had joined. And people who have no idea what mutual aid is, being debited every month, are certain to make trouble.

2. Rule-making should put risk control first. For example: the waiting period should never be set at three months; it should be at least six to eight months (KangAi Commune's is twelve). Because under this model users join without paying, fraudulent claims cost nothing, adverse selection is likely to be higher and the scope for fraud greater.

3. Screen users and educate them. Getting users through Alipay's and Alibaba's resources is not difficult, so there is every ability to screen for qualified users. At joining, for example, a user could first have to pass a short quiz of three to five questions — for instance, "Tick the ways in which you think mutual aid differs from insurance." Those who answer incorrectly cannot join.

4. Set up a dedicated Xiang Hu Bao account. The user authorizes or tops up an amount; the money in that dedicated account can be deducted as contributions, and beyond it no automatic deductions would be made through Alipay.

5. Collect a review deposit. Without one, the platform would be overwhelmed by irresponsible applications.

6. Reduce the management fee. Eight percent is too high and will not be accepted by society; 4 percent would be enough. (KangAi Commune currently charges 2 percent.)

At the Strategic Level

These are things to do in advance, not once the regulators come calling.

1. Keep a distance from licensed industries. A new model with no complete legal and policy framework must be handled with great caution, drawing a clear line between itself and industries tied to existing licenses, so as to respond reasonably to the regulators of those licenses.

2. Spin off quickly. Using Alipay's enormous user base to grow Xiang Hu Bao users was effective and reasonable at the very beginning, but once an initial user base was established, the application should quickly have been spun off into an independent entity with its own "Xiang Hu Bao" app, with statements in both Alipay and Xiang Hu Bao noting the difference in operating entities and risk-isolation measures put in place.

3. Draw a complete line between itself and insurance and other financial products, and cut off mutual traffic. Many mutual aid platforms, Xiang Hu Bao included, use so-called protection upgrades to steer users into buying insurance — this is foolish. It amounts to telling users that our mutual aid is also a kind of insurance, and an inferior kind of insurance. Worse still, some make telephone sales pitches of insurance products to mutual aid users. There is no reverence for financial regulation.

4. Support the development of small mutual aid platforms. Xiang Hu Bao could fully have launched an incubation program for the mutual aid industry through venture investment and the sharing of Alipay's resources, thereby genuinely forming an industry. Each platform might have its own area of focus to complement the others, and no one could have shaken Xiang Hu Bao's leadership.

5. Launch an industry alliance. Xiang Hu Bao did in fact do this once, but according to the news, everyone in the alliance was a company affiliated with Alibaba — not one other mutual aid platform. How is that an alliance? Xiang Hu Bao should not only have initiated an alliance covering the great majority of mutual aid platforms, but should also have used its formidable strength to provide assistance with rules, risk control, actuarial work and legal affairs. That is the responsibility appropriate to a company of its size — and it would have served its own interests too.

6. Proactively discuss regulation with the relevant authorities. Whether it is the civil affairs bureau, the health authorities or the financial regulator, it should have approached them voluntarily, submitting risk-control plans, raising questions of legality and offering regulatory suggestions, along with its thinking and views on key issues.

7. Join forces with the media, the legal profession and academia to spark public discussion, broadly addressing the legality of the mutual aid model and how it can be made more standardized and sustainable. In academia, open the relevant data for academic and educational research.

8. Layer in an ecosystem and weaken the financial character. Integrate medical resources, for instance — direct medical payments, the supply of medical resources and so on. This should have been done from the start, so that mutual aid is not merely mutual aid in money but mutual aid in medical resources. No other mutual aid platform has the ability to do this; only Alibaba does.

9. Convert it to operation as a public-interest organization. Because critical-illness mutual aid carries a public-interest image in society, operating it commercially runs into traditional resistance in some areas and poses regulatory difficulties (and setting detailed regulatory rules is not that easy either). Under the existing regulation of public-interest organizations, turning it non-profit and increasing transparency would, through social oversight, greatly reduce that resistance.

All of the above is premised on Alipay's resources and strength; some of it is what we would like to do at KangAi Commune but, regrettably, cannot. Of course, saying this now is too late. Xiang Hu Bao's influence was so great that it was almost equivalent to the mutual aid industry itself. Its fall will bring an unprecedented surge in social distrust and user skepticism, and the mutual aid industry will not recover for many years. Xiang Hu Bao's executives may go elsewhere for high salaries, or move to other departments to make a fortune when Ant lists, and may even play the martyr to court sympathy as if they were heroes — while we mutual aid platforms, committed to the long term and to a Century Commune, must now face a bleak reality.