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Five Key Takeaways from the Interview with the CEO of ZhongAn Insurance

ZhongAn has more customers than any other insurance company on the planet and they are less than five years old

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A couple of weeks ago we published a podcast with the CEO of ZhongAn Insurance, Jeffrey Chen. I want to highlight some of the key takeaways today because I think they are a truly amazing company and some of these highlights might have been lost in translation.

Back in June, IFR, a Thomson Reuters publication, broke the news that ZhongAn had filed an IPO application to the Hong Kong stock exchange targeting a listing as early as the end of 2017, raising up to US$1.5 billion. If the deal goes through, ZhongAn will be the first insurtech company to be listed in Hong Kong. It will also likely become one of the most valuable fintech companies on the planet.

With that background here are the five key takeaways from my interview with Jeffrey Chen.

1. ZhongAn is Backed By Some of China’s Largest Companies

Ping An Insurance is ranked by Forbes as the #1 insurance company in the world. They are an early backer of ZhongAn. The other early backers were Alibaba and Tencent, the two most valuable companies in China as measured by market cap. This would be like a fintech startup in the US receiving initial funding from Apple, Amazon and Berkshire Hathaway. Truly impressive.

2. Their First Product Was a Simple Insurance Offering for Alibaba Merchants

ZhongAn’s first product was called Zhong Le Bao, a type of e-commerce returns insurance. It was launched on Alibaba’s Taobao platform and was aimed at covering merchant shipping losses when consumers were dissatisfied with product purchases. It also allowed merchants to bypass Alibaba’s deposit requirements. [Read more…]

Hongling Capital: The Worst Victim of China’s P2P Lending Regulatory Crackdown

The story behind the largest P2P lending platform in China announcing they will be exiting the business within three years

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China’s former largest P2P platform Hongling Capital announced in late July that it would quit the online lending business within three years. During the period, Hongling will try to find ways to handle toxic loans, by selling collateral properties, for example.

The platform now has over 20 billion yuan ($3 billion) assets to settle, which includes 5 billion yuan ($750 million) of non-performing assets and 800 million yuan ($120 million) of bad debts. As of August 12, Hongling Capital has had 1.85 million investors and the accumulated trade volume is 274.7 billion yuan ($41 billion).

Large Loans Model

Hongling’s announcement put an end to what’s in China called “large loans model”.

The idea of the “large loans model” is that P2P platforms would match retail investors’ money to large projects that need to be financed, and sometimes a single loan from a single project could be as large as 100 million yuan ($15 million). Some of these projects were subprime and could hardly get loans through traditional financing approaches.

Established in 2009, Hongling as one of the oldest P2P platforms in China and they have created many innovative practices in P2P lending. However, some of these practices were later banned by the new regulatory rules. The large loans model was one of them.

Before the P2P lending industry took off in China, there were few explicit regulatory rules. However in August 2016, regulators released new rules on the loosely regulated industry, capping the size of loans at 1 million yuan ($149,000) for individuals and 5 million yuan ($743,000) for companies.

This basically ended the large loans model for companies like Hongling. Zhou Shiping, the founder and chairman of Hongling Capital, said on various occasions that he is not optimistic about P2P lenders that solely providing small loans. The reasons are two-fold. First, the interest rate would be too high for retail borrowers, and second most P2P lenders are not capable of using technologies, like anti fraud, to maintain their business.

For now, some relatively successful P2P lenders introduce PE/VCs to invest in the bad loans, and then PE/VCs will exit through capital markets, Zhou said.

Guaranteed Bailout

Although Hongling is one of the largest P2P platforms measured by trade volume, it has barely made a profit and even began to make loss recently: Hongling Capital made a loss of 183 million yuan ($27.4 million) in 2016 whilst in 2015 their business was still in the black.

This is largely because Hongling has a tradition of guaranteeing principal and interest on loans it facilitates – this is another common practice in the P2P lending  industry in China  that was initiated by Hongling and later banned by the new regulations.

It is interesting to see that, at the press conference where Hongling announced it would quit the online lending business, some investors still wanted to make investments on whatever platforms run by Zhou Shiping.

Zhou Shiping, born in 1968, always shows up in the public with a humble and down-to-earth image. Zhou has been transparent about some of the bad debts on the platform. After breaking the bad news, Zhou usually implicitly or explicitly guaranteed that the investors would not lose money, as the platform would pay up.

(Zhou Shiping, Founder and Chairman of Hongling Capital)

[Read more…]

The World is Paying Attention

Bo Brustkern, Chairman & co-founder of LendIt China shares his experience from the LendIt China Tour and Land Di Fintech Conference

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On July 15-16, 2017 we hosted the annual Lang Di Fintech conference. Lang Di is the largest and most prestigious fintech event in China, and it is one of LendIt’s cornerstones, including our USA and European conferences. For two days in Shanghai, the world’s fintech leaders gather for a truly unique conference experience, networking and peer sharing.

Leading up to Lang Di, we led a weeklong tour of China – to Macau, Hong Kong, Beijing and Shanghai – with an elite group of executives from all over the world. On Tour and at Lang Di we gained keen insights, planted and cultivated the seeds of business development, and developed a strong bond among each other and many of our Chinese hosts.

What follows are some of the observations I made while there.

Billions

In China there are more than a billion consumers that are generally underserved across a broad spectrum of financial services, making for a diverse and exciting array of opportunities to address. Yet China is dominated by giants – institutions like Bank of China and technology firms like Alibaba –companies that have tens of thousands of employees and hundreds of millions of customers. The scale of the opportunity is enormous, and so is the size of the companies trying to address it.

This is not to say that small businesses cannot survive. In the much-anticipated comments of Mr Sun Guofeng of the People’s Bank of China (PBoC), the standing-room only audience heard a clear message that the government wishes to provide an umbrella of support to the emerging Chinese fintechs. Many of my Chinese colleagues were simply elated to hear the remarks of Mr Sun. It was a brilliant speech. Brilliant. Why? He pronounced a message and a mission: first, that China is a fintech leader, second that China must lead the world, and third that challenger fintechs were important players in the plan.

Consumer protection is important (do you hear the rattling of the sabre?) but at the same time, we want to keep the good among us (do you see the passing of the olive branch?). The PBoC wishes to harmonize and rationalize the regulations, and allow for the convergence of fintechs and banks. While the focus may be on the “national champions,” the PBoC won’t let them choke out the upstarts. In essence, the government of China is placing a protective order around innovation and entrepreneurship. If this sounds strange or surprising to you, it’s time to get beyond the headlines and visit China to see for yourself what’s really going on there: a massive onslaught of entrepreneurship the world has not witnessed since the post-war American boom.

An American in Shanghai

The six-term senator from Montana, former Chairman of the Senate Finance Committee and former Ambassador to China, Max Baucus, gave a charged speech on his views of Sino-American collaboration in the new world of Ethereum, Alipay, IBM Watson and Amazon Web Services. “The living standards of our children and grandchildren depend on us getting along,” he said. With $60 billion in trade between the countries, more than 2 million travel visas and 300,000 student visas issued each year, our countries are irreversibly intertwined. It is essential that the citizens of our countries understand and respect each other, and enjoy the benefits of working together.

Ambassador Baucus praised China for its energy, enthusiasm and pragmatic spirit. China is leapfrogging US payment systems with Alipay and WeChat Pay, two mobile-only QR-based payment systems that have seen rapid, massive adoption and will soon render cities and villages all across China cashless and cardless.

American companies who do best in China spend a lot of time here, said Baucus. His one word of advice: “just go.” Get out the door, get to China, and meet your counterparts. It’s important for America, and it’s important for you. Sure, it may be intimidating to huck yourself over the border, but personal relationships are critical to the Chinese. They will respect you for trying, so long as you approach them with an empty cup.

[Read more…]

Research on Financial Inclusion and Poverty Reduction in China

The newest member of the Lend Academy team highlights financial inclusion in China with three case studies.

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[Editor’s Note: This is a post from Sherry Zhang who is the latest member of the Lend Academy and LendIt teams. Sherry is based in China and previously covered the Chinese fintech market. She is helping us craft our LangDi Fintech agenda but you will also see her contribute here on Lend Academy to give us additional insight into the Chinese market.]

A brief history of financial inclusion in China

In June 2012, then Chairman Hu Jintao mentioned financial inclusion at G20 summit in Mexico. This was the first time a top Chinese leader mentioned “financial inclusion” in a public speech.

In Nov 2013, the Party’s central committee approved an important document entitled “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform”. The document made it clear that China “will develop inclusive finance.”

In Jan 2015, CBRC established a financial inclusion department under the committee to oversee micro-finance, micro-loans, P2P lending, and issues of agriculture, farmer and rural area.

In Jan 2016, the State Council issued a circular and made a five-year plan (the Plan) to develop the country’s inclusive finance. The goal of the Plan is to set an inclusive finance system that is in coordination with the construction of a moderately prosperous society by 2020 and satisfies people’s need for financial services.

This research will focus on three case studies in the financial inclusion market: CFPA MicroFinance, Ant Financial, and CreditEase.

Case study 1: CFPA MicroFinance

CFPA Microfinance is one of China’s largest microfinance players:

  • As of Dec 2016, CFPA Microfinance currently has branches in 229 counties and 18 provinces throughout China, and 85% of the branches are located in areas designated by the Central or Local Governments as poverty stricken counties.
  • As of Nov 2016, CFPA Microfinance has disbursed loans valued at RMB CNY 18.4 billion ($2.7 billion) to 1.61 million clients, with average loan size of CNY 11,000 ($1,620). 62% of all loans have been deployed for the purpose of raising livestock, breeding fish and farming and etc.
  • Approximately 3 million low-income villagers have received microloans from CFPA Microfinance for improving their livelihood and raising local production.

CFPA Microfinance’s largest shareholder, China Foundation for Poverty Alleviation (CFPA), was established in 1989. CFPA was one of the first non-profit organizations in China. International Finance Corporation (IFC) became acquainted with the foundation in 2007, and suggested that it make its microfinance business an independent business.

In November 2008, CFPA Microfinance Co. was established. In 2010, Sequoia China Capital and IFC made equity investments in CFPA Microfinance. After the investments, the CFPA’s ownership in CPFA Microfinance was reduced from 100% to 61%.

In Dec 2016, Ant Financial, IFC and High Impact Capital Advisors announced another investment in CFPA Microfinance. After that, Ant became the second-largest shareholder after CFPA.

A report by IFC (2012) said that, IFC helped CFPA Microfinance in terms of corporate governance, IT systems, HR, risk management, so CFPA Microfinance has achieved both business performance and social development:

Business performance:

  • CFPA Microfinance now ranks among the top microfinance institutions in China in terms of profitability, asset quality, operating efficiency, and (low) average loan size.

Social development:

  • 91% of all CFPA Microfinance clients are women
  • At least 80% of CFPA Microfinance clients would not have been able to borrow from anywhere else, according to a survey by the China Agriculture University and China Academy of Social Sciences
  • 49 out of the 53 CFPA Microfinance operating outlets are in China’s Nationally Designated Poverty Countries, the poorest areas in the country.

[Read more…]

11 Of The Largest Companies In China Dominate Chinese Fintech

A Rundown of the Huge Chinese Fintech Conglomerates That No One Is Talking About.

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There is a belief in China that Fintech is going to be larger than E-Commerce and the race is for companies to stake their claim in this new market.  China has a massive emerging middle class and very little traditional banking services for consumers and small businesses.  Of the 1.4 billion people in China, only about 300 million are in the national credit bureau, which means that more than a billion people have no credit profile.  Hundreds of millions of Chinese “unbanked” consumers are middle class, have high discretionary income, and would be considered prime or super prime borrowers. On top of that, the large Chinese banks have no history in making consumer and small business loans and were never designed for that purpose (they make infrastructure and commercial real estate loans).

This huge void in the market has been identified by virtually every major Chinese company that has a business-to-consumer (B2C) relationship.  If a firm has data on a large sample set of consumers, then they have a unique proprietary edge from which to assess the creditworthiness of those unbanked consumers.  We are seeing the leading Chinese companies from a diverse set of industries muscle their way into the fintech sector.  This article highlights some of the key players that have made the horizontal jump into fintech.

E-Commerce:

Ant Financial

Ant Financial Services Group is owned by Alibaba Group, the largest e-commerce firm in the world.  Ant Financial is focused on serving small and micro enterprises as well as consumers.  With the vision “to turn trust into wealth,” Ant Financial is dedicated to building an open ecosystem of Internet thinking and technologies while working with other financial institutions to support the future financial needs of society.  Businesses operated by Ant Financial Services Group include Alipay for payments, Yu’e Bao for money market services, Ant Fortune for wealth management, Ant Check Later and Ant Micro Loans for financing, Zhima Credit (formerly Sesame Credit) for credit reference, Zhao Cai Bao for online lending, and MYBank for small business lending.  Ant Financial is the largest fintech company in the world.

JD Finance

JD Finance Group operates seven lines of business: supply chain finance, consumer finance, crowdfunding, wealth management, payment services, insurance and securities trading. JingBaobei is their microlending platform and Baitiao is their crowdfunding platform. Jintiao and Xiaobai are their wealth management businesses. Through their access to transactions and credit management systems the companies provide financial services to enterprises and consumers.

Search:

Baidu Jinrong

Baidu Jinrong is the financial services arm of Baidu Corporation that was formed in 2015. Baidu operates the second largest search engine worldwide behind Google. Baidu Jinrong is focused on many different verticals under different brands including consumer finance (Baidu Umoney), wealth and fund management (8 Baidu), payments (Baidu Wallet) and financial asset transaction platform services. Through joint ventures the company also does business in internet banking and insurance. [Read more…]

This Summer LendIt is Offering Two Ways to Learn About China

LendIt is headed to China again this summer with our annual Lang Di Fintech Conference and LendIt China Executive Tour

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The LendIt team is excited to return to China for our second annual Lang Di Fintech conference on July 15 -16 in Shanghai and our fourth annual China Executive Tour from July 8-17. The tour will start with some fun in Macau, move to Hong Kong for our Investor Summit with AMTD, then onto Beijing for three days of meetings, and finally end in Shanghai for the conference itself.

The Second Annual Lang Di Fintech Conference in Shanghai

In China, the LendIt Conference is called Lang Di Fintech and it is the largest fintech event in the country. Similar to other LendIt events in the USA and Europe, Lang Di Fintech will be a key forum for the leading global fintech companies to meet, learn, share experiences, and build partnerships. We expect over 2,000 attendees comprised of entrepreneurs, investors, regulators, service providers, researchers and media from the US, Europe and China.

Lang Di Fintech will cover a broad spectrum of fintech topics with a special emphasis on technology and financial inclusion. We will have six broad categories, which include fintech technology, blockchain, lending, banking & technology, financial inclusion, and Asia Pacific Fintech outside of China. We will have specific panels on technology like artificial intelligence, biometrics and cybersecurity.

Lang Di Fintech will feature more than 50 Western speakers including government leaders and executives from leading financial services firms. As always, simultaneous translation is provided for all guests at our event.

The Fourth Annual LendIt China Executive Tour

[Read more…]

Marketplace Lending Predictions for 2017

My annual gaze into the crystal ball brings you seven predictions for 2017 as well as a review of my last year's predictions.

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Crystal ball - 2016 predictions

Happy New Year everyone. As I do every year at this time I make a few predictions for the year ahead as well as review my previous years predictions.

Review of my 2016 Predictions

As we know 2016 turned out in a way that was completely unexpected. Regardless, I will go through what I thought would happen in 2016 – some things I got right and with others I was way off.

  1. Lending Club will launch an auto lending operation this year
    Despite the challenges at Lending Club in 2016 I did get this one right. They launched a new auto lending operation in October in their first new product expansion in more than two years.
  2. Consolidation will begin
    I was not really right with this one. While consolidation did begin somewhat in 2016 my suggestion of three platforms buying acquired by larger competitors did not really come true. We saw several platforms go out of business but only one or two minor acquisitions.
  3. There will be five IPOs in our industry in 2016
    I was embarrassingly wrong on this one. I expected the IPO market to rebound in 2016 and several of the large platforms to take advantage of the public markets. I was completely wrong with zero IPOs in our industry in 2016.
  4. Three large banks will build platforms
    I was pretty much right on this one. We had Goldman Sachs launch their Marcus platform in 2016 and we also saw Wells Fargo launch their Fastflex product for online small business lending. While outside the US, German banking giant Commerzbank launched their own online lending platform.
  5. A Chinese company will buy a U.S. marketplace lending platform
    This did not happen in 2016 although interest in the US marketplace lending industry in China has never been stronger. I think I was probably a couple of years early on this prediction.
  6. The retail investor will become more in favor in 2016
    The retail investor certainly became more in favor this past year. There were some new Reg A+ deals announced and Lending Club made several moves aimed at increasing retail investor volume including the one just last month providing bonuses for new IRA investment.
  7. A new trade association will finally launch
    This was an easy one to predict as many of the leading companies have been talking about it for some time. The Marketplace Lending Association launched in April and we had several other initiatives launch as well.

[Read more…]

The Top 10 Most Important Marketplace Lending Stories of 2016

In our annual retrospective we break down some of the biggest news stories that we covered on Lend Academy this year.

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Sunset-2016

Many of us in this industry will be glad to see the last of 2016. It has been a difficult year on many fronts, certainly the most challenging in the industry’s short history. This was the year of the pullback as the rapid growth of the last decade dissipated amid a downturn in investor interest due to missteps at some of the major players. But there was also some good progress made this year as you can see in many of the stories below.

Here are my top 10 most important news stories that we published on Lend Academy in 2016.

1. Lending Club Founder Renaud Laplanche has Resigned as CEO

It was a very easy choice for the biggest news story of this year. The departure of Lending Club founder and CEO Renaud Laplanche was the most important news story of this past decade. He was the leading figure in the industry. His drive and vision was one of the main reasons not just Lending Club but the entire industry had seen such growth over the previous few years. The news of his departure rocked the industry globally and led to a dismal 2016 for many lending platforms.

2. New Fintech Charter Proposed by the OCC

There has been talk about a new regulatory structure for marketplace lending since the GAO report way back in 2011. By September it was clear that the Office of the Comptroller of the Currency (OCC) was going to take the lead here. In early December the head of the OCC, Thomas Curry, announced the plans for a new fintech charter that will launch in 2017. They are currently seeking public comment on this idea until January 15, 2017. This will be a big story to watch in 2017.

3. The Goldman Sachs Consumer Lending Platform Called Marcus Has Launched

[Read more…]

KPMG and H2 Ventures Release the Global Fintech 100

The third annual list of global fintech leaders includes innovative companies from 23 countries around the world.

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kpmg-h2-ventures-fintech-100

This week KPMG and H2 Ventures released their third annual Fintech 100 list. This list is actually two lists of 50. The first list called the Leading 50 highlights those established fintech companies that are true leaders in their field. The second list is called Emerging Stars and as the name implies features those newer companies that have a great deal of promise.

The researchers ranked the companies on the Fintech100 by considering the following five factors:

  1. Total capital raised
  2. Rate of capital raising
  3. Geographic diversity
  4. Sectorial diversity
  5. X-factor: degree of product, service and business model innovation (a subjective measure that is applied only with respect to companies appearing on the 50 Emerging Stars list)

The list covers many areas of fintech with lending leading the way. Here is a breakdown of the categories for every company: [Read more…]

What I Learned on the LendIt China Tour and Lang Di Fintech Conference

LendIt has just spent a week in China hosting our third annual Executive Tour that culminated in the inaugural Lang Di Fintech Conference in Shanghai

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What a 10 days I have had in China. The LendIt team has just finished hosting the third annual LendIt China Executive Tour as well as the first ever Lang Di Fintech conference. This trip to China has been one of my favorite experiences since starting in this business 5 ½ years ago. I have learned a great deal, made many new connections and got to spend a lot of time with the 37 people who came on the full seven-day Executive Tour. Here is a review of the past week with many of the highlights.

The Global Fintech Investment Summit in Hong Kong

Jason Jones opening the LendIt AMTD Global Fintech Investment Summit

Jason Jones opening the LendIt AMTD Global Fintech Investment Summit

The LendIt China Executive Tour began in Hong Kong last week where we gathered for the inaugural Global Fintech Investment Summit. This was an event cohosted by LendIt and AMTD, an investment bank and advisory group based in Hong Kong. We brought together a group of almost 150 investors to meet with the tour participants, which consisted primarily of platforms and funds.

Tour members were able to make short presentations to investors and we also organized a ton of 1-on-1 meetings. Lots of new connections were made there with most participants reporting significant interest from the investors. We also visited the Hong Kong offices of CreditEase where we met with people from their investment team who are looking to make investments in international platforms.

Tencent’s WeBank and Weilidai

[Read more…]

About Lend Academy

Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.

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