Over the past nine months we have worked independently and in conjunction with our friends at Wangdaizhijia, a Chinese P2P lending media firm, to research the huge Chinese P2P lending market. As we mentioned in early December, the market is enormous, arguably larger than the US market, and it is growing rapidly. There are literally hundreds (or possibly thousands) of Chinese P2P lending platforms, which made it difficult to figure out where to start. So with every interview, we asked the simple question, who are the most important P2P lending companies in China? Not the largest or the oldest or the most popular but rather, who are the most important? We have received a variety of answers but after asking the question over and over, a clear group of firms have emerged. The following is our list of the most important Chinese P2P lending companies ranked in alphabetical order:
China Rapid Finance (formerly China Risk Finance)
China Rapid Finance is a 12 year old company that provides consumer credit management solutions to financial institutions to help manage credit card risk and to develop credit card decision solutions. They are experts in risk underwriting, and more than 50% of all credit cards that have been issued in China have used CRF’s credit risk underwriting models. In 2011, CRF launched a P2P platform and, at the end of 2013, the platform had an outstanding balance of approximately 1.5b yuan ($250m) with average loan size of $6,000. According to the Wall Street Journal, China Rapid Finance is in the preliminary stages of exploring a U.S. IPO.
CreditEase is the largest P2P lending platform in the world. They are also a wealth management firm that provides a suite of services to its investors including asset allocation guidance, insurance policies, and mutual fund investment advice in addition to access to their P2P lending platform. According to the company, CreditEase has originated over 60b yuan ($9.6b) in secured and unsecured P2P loans to date up from about 27b yuan ($4.3b) last year for a 122% growth rate. CreditEase relies on a huge sales force for offline borrower acquisition, which accounts for 99% of their originations, and they have a large secured lending business, which is mostly comprised of car loans. Their online lending originations represents a small fraction of their overall business.
Their average unsecured loan size is $8,000, the average duration is about 24 months, average interest rate of between 8-26%, and their average default rate is 2-3%. In 2011 the partnered with Fair Isaac (FICO) China to develop risk based scorecard for their underwriting decision making. Kleiner Perkins, Morgan Stanley, and IDG are venture backers.
Dianrong (formerly SinoLending)
Founded by Soul Htite, the co-founder and former Head of Technology of Lending Club, Shanghai-based Dianrong is a P2P platform for small and medium enterprise loans in Mainland China. Unlike many of their competitors Dianrong uses a marketplace model that generates revenue for its technology marketplace as opposed to taking a spread on each transaction. In addition, similar to Lending Club, Dianrong provides credit ratings and risk controls on every loan. Mr. Htite plans to recreate the success of Lending Club in China. They recently raised $12m lead by Northern Lights Capital and have assembled a very high quality credit and technology team to build out the platform. Mr.Htite is quoted as saying “China’s fast growing and rapidly changing economy represents the perfect environment for modern business models empowered by technology to be quickly adopted. For instance, China is home to 42 million SMBs representing 99% of the country’s enterprises. They contribute to 60% of the GDP and 50% of tax revenue and still only 10% of them will receive funding from banks.”
Lufax is the third largest P2P platform in the world and easily the fastest growing. According to the company, Lufax grew online originations from 151m yuan ($24m) in 2012 to 3.3b yuan ($528m) in 2013 for an amazing 2100% growth and they expect to originate 10-15b yuan ($1.5b to $2.6b) in 2014. Their growth vaulted them ahead of every P2P platform except for CreditEase and Lending Club.
Lufax is a division of Ping An, which is one of China’s largest insurance companies. They use Ping An’s balance sheet to guarantee all of their loans. Their returns are slightly lower than Chinese P2P industry average at 7-8% but the guarantee from a trusted name make the loans very attractive. In addition, approximately 30% of loans are traded on an active secondary market, which provides liquidity as well as guaranteed returns.
According to their CEO, Greg Gibb, their primary motivation is to create the largest online wealth management firm in China and they use P2P as an inexpensive acquisition channel to acquire new investors. They have been able to upsell additional Ping An insurance and wealth management products and they have successfully grown non-P2P products to 3x the size of their P2P business. Here is a great Bloomberg video interview with Mr. Gibb.
my089 is one of the oldest P2P lending platforms in China, founded in 2009. They were the first to offer a guaranteed return to investors and they became very popular early on. To date, they have originated about 4b yuan ($650m) although their growth rate has slowed to about 25% annually making them the slowest growing of the large P2P platforms in China.
Founded in 2007 by former Microsoft Corp. engineer Zhang Jun, PPDAI was the first online P2P platform in China. PPDAI’s primary focus is to lend to online small businesses that sell through Alibaba/Taobao with over 80% of all loans going to small businesses. Much like Kabbage lends to small businesses that sell on eBay in the US, PPDAI uses online data about the small businesses like seller ratings, user ratings, and social networking presence to determine the credit quality of their borrowers. PPDAI has about 2 million registered users and was expected to generate $163m in sales in 2013. PPDAI raised a rumored $25m Series A from Sequoia in September 2012, $35m from Alibaba Group in November 2013. In April 2014, PPDAI raised a Series B lead by Lightspeed China Partners, which is rumored to be about $45m.
To ensure that it could continue to grow in the absence of clear regulation, PPDAI was granted an operating license as a provider of “financial-information services” in May 2013 by Shanghai’s Administration for Industry & Commerce.
One risk for PDDAI is that it is facing increased competition from Alibaba, which has created its own SME financing arm and has provided $600m in loans in 2012 and $2b in 2013 according to the Financial Times.
RenRenDai is one of the largest and fastest growing P2P lending platforms in China. Founded in 2010 in Beijing by Yang Yifu, RenRenDai offers loans to consumers and small businesses with yields ranging from 10% to 18% and maturities ranging from 3 to 24 months. Investors can invest as little as 50 yuan ($8) and borrowers can borrower up to 50,000 yuan ($8,000). According to company reports, RenRenDai facilitated 1.57b Yuan ($251.1 million) in originations in 2013. They grew over 800% in 2012 and grew 342% in 2013. To put this in perspective, Prosper grew 133% to $357 million in 2013. In early January 2014, RenRenDai, announced a massive $130 million Series A round led by Chinese venture capital firm, Trustbridge Partners ($65m).
Yooli launched in February 2013 and received a Series A financing of $10m from Softbank in November 2013. They are an aggregator of P2P platforms similar to Kayak in the US e-travel space. They offer their investors access to loans that are originated off of many of the smaller P2P platforms. In order to build trust and confidence, Yooli partners with a third party to assess the credit quality of each individual loan and they partner with a third party guarantor to ensure that the lenders receive monthly returns.
There are Lessons to Learn From the Chinese P2P Lending Market
We decided to publish this list ahead of the LendIt Conference because we want to draw our audience’s attention to the massive Chinese P2P market. China is an important P2P market that is not well understood by non-Chinese. Their market has developed differently than in the US and the UK and they have unique business models that can be applied outside of China.
We will host a Chinese P2P panel at the LendIt Conference next week, which will be available by live stream through our webcast. The following people will present:
Hubert Tai, COO/CTO of Lufax
Yihan Fang, Head of Online Division, CreditEase
Soul Htite, CEO & Founder, Dianrong
Dr. Zane Wang, CEO & Founder, China Rapid Finance
We hope that this summary provides some background and clarity to this fascinating market.