[This Is the second article in a two part series on CreditEase, the world’s largest p2p lender. The first article provided some background on the p2p lending market in China and CreditEase. Here we delve into some specifics about CreditEase to help understand how p2p lending works in China.]

When I was introduced to Mr Huan Chen, Chief Strategy Officer of CreditEase, I jumped at the chance to do an email interview. Here are his unedited responses.

Q. How big do you think the peer-to-peer lending industry is in China? How many platforms are there?

China’s P2P industry quite different from the US market, we can see many new startups into the industry every month, therefore we don’t know exact the number of P2P platforms in China, some people estimate that there are 1000+ companies in the field. Again, we also don’t know the market size in China, it might be about 20-30 bln USD in this year.

Q. Can you please explain your business model for our US readers. 

Basically, our P2P model is quite similar to the US p2p players. The platform develops both potential borrowers and lenders, assess creditworthiness of the borrowers and then underwrites loans, sets the loan size and determines interest rates. The platform charges both borrowers and lenders a service fee.

What makes it different from the US market is that P2P platforms in China mainly use a sales force to acquire clients [borrowers]. The personal loan/personal credit market is still very new in China, banks have not historically offered personal credit loans, and there is no similar marketing channel in China as targeted direct mail in US, so platforms needs to build a direct sales model in order to target and educate potential customers.

Q. Who are the typical borrowers and typical lenders?

The target customer differs from the US since most of our borrowers are underserved individuals and micro-business owners who can’t borrow from the banks. Many of them don’t have any credit history with banks. That is why we think that the P2P industry is quite helpful for the development of inclusive finance in China.

The purpose of borrowing is quite different as well.  As we know, LC’s borrowers mainly borrow money for debt consolidation but in China, they mainly borrow money for business purpose.  Even if they are salary workers, they might use the proceeds on their side-businesses or businesses run by their family.

The lenders in P2P platform in China are mainly individuals. They are typically part of what is called the mass affluent with an average of over 200,000 yuan ($32,000) invested. We also partner with trust companies in China as institutional lenders.

Q. Can you share what kind of lending volume you are doing in US dollars in the past year and the past month? 

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[This is the first in a two part series on the Chinese p2p lending market. Tomorrow we will bring you an exclusive interview with a senior executive at the world’s largest p2p lender.]

Quick quiz, what is the largest e-commerce company is the world? Amazon? eBay? Wrong. It is the Alibaba Group in China, which is way larger than Amazon and eBay combined. In fact, Alibaba just did $5.75b in sales in a single day last month. To put that into perspective, this article from USA Today said all US companies (Amazon, eBay, Walmart.com, Bestbuy.com, etc) on Cyber Monday this year did $2.29 billion in sales. Yes, Alibaba (and China) is that large.

Ok, second quiz, what is the largest p2p lending company in the world? I think you know where I am going with this, but if you guessed Lending Club you would be wrong (even though I have stated as much on several occasions). Introducing China’s CreditEase, the largest p2p lending company in the largest p2p lending market in the world.

A Massive Market

Before we dive deep into CreditEase, let’s take a quick look at the massive Chinese p2p lending market. After doing some research on the Chinese market, the first thing I have to say is that no one knows exactly how large the market is, but everyone agrees that it is HUGE. The general consensus is that there are more than 2,000 p2p lending companies in China (see here and here) and they are categorized as part of the Chinese shadow banking economy, which is estimated to be 22 trillion yuan or $3.6 trillion US dollars according to Credit Suisse. According to Caixin Online, which cites a report published by the People’s Bank of China (China’s equivalent of the Federal Reserve), the Chinese p2p lending market is worth 60 billion yuan, which is the equivalent of $9.8 billion US dollars! If you drill down further, the research firm Celent Research, recently published a report that estimates that the online p2p market originated $940m in 2012 and is expected to grow to $7.8 billion by 2015.

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