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Learnings from LendIt China 2015

The Lendit China Tour was a remarkable event and an extremely valuable experience for the Orchard team, who was thrilled to be in attendance. The excursion was a seven day tour, starting in Beijing and ending in Shanghai, that drew the largest marketplace lending players from China and around the globe. Orchard CEO & Co-Founder, Matt Burton and I were pleased to have the opportunity to speak  both in Beijing and Shanghai and be graciously hosted by industry leaders such as Credit Ease, Jimubox, China Rapid Finance, Dianrong, and Quark Finance.

Experiencing the unique Chinese market first-hand brought clarity to some previously unfamiliar characteristics and highlighted the many ways in which we can learn from each others’ strengths and capitalize on opportunities to move marketplace lending forward on a global level.

SIZE

Comprehending the enormous size of the Chinese marketplace lending industry is a feat in itself.  There are currently 2,000 Chinese originators, and there were over $50 billion of Chinese loans originated last year, with even more substantial growth happening in 2015.

INVESTOR COMPOSITION

The vast majority of investors in Chinese loans are individuals in China, in contrast to the overwhelming majority of U.S. loans, which are being purchased by institutional investors in the U.S.

MOBILE APPS

Most U.S. originators do not currently offer their investors or borrowers a mobile app.  In China, mobile apps are the primary channel for originators to interact with both their borrowers and investors.  This is because the mobile phone in China is the primary “computer” used by citizens.   As a result, it is imperative that a Chinese originator have a mobile app to be successful in the marketplace.  Some Chinese originators like Credit Ease are already offering an Apple Watch app to further interact with their customers.

UNDERWRITING PRACTICES

There is currently no FICO score in China.  Therefore, originators emphasize the use of “Big Data” in underwriting loans.  Sophistication in analyzing aggregated data across many sources is a big trend in Chinese marketplace lending.  Another important difference between Chinese and U.S. marketplace lending deals with data available from mobile phones.  Most Chinese borrowers sign a written consent to let the Chinese originator have full access to all the information from their mobile phone, a practice that would be outlandish in the U.S.  This information is invaluable for originators, as they can, for example, easily determine if the borrower has made or received calls from other originators and collection agencies.  Additionally, they can track a borrower’s mobile shopping history, which is valuable data for them in the underwriting process.

 

GUARANTEED RETURNS

Most originators guarantee returns for investors, which is unheard of in the U.S. and other markets.  These guaranteed returns usually range from 8% to 14%.   Chinese platforms’ interest rates charged to borrowers generally range from 20% to 40%.  About 10% of the interest rate charged is generally paid to a third party insurance firm to help provide the guaranteed return.   The insurance to guarantee the returns has not yet been systematically market tested to determine how well it will actually perform in times of distress.

SECONDARY MARKETS

Most originators within their mobile apps offer investors a secondary market for their loans.  They make it very easy to sell the entire loan or even just part of a loan to other investors using their mobile app.  Most loans are only available to be sold at par or a discount, because the loans are generally short term loans of about 12 months.

ADDITIONAL SERVICES

Several Chinese originators have executed well in offering additional products and services to their customers.  These services include wealth management, business payment services, and insurance.  The two firms that stand out in this area are Credit Ease and Lufax.

SUMMARY

There are many aspects of Chinese marketplace lending from which  other countries around the world can learn,including the use of mobile apps, secondary markets, and the offering of additional services.  Likewise, the Chinese marketplace lending industry believes they can learn from other countries’ regulatory and underwriting practices, amongst other things.  China offers an incredible opportunity in two ways:  1) for other countries to purchase Chinese loans and 2) for Chinese investors to purchase other countries’ loans.  Both of these opportunities would benefit the global diversification of marketplace lending assets.
It was rewarding for Orchard to participate on the China Lendit Tour and to help us continue to be a catalyst for the continued global growth of the marketplace lending industry.

  • Jason Jones

    Hey Jeremy – what an adventure! We had fun exploring a new country and meeting new companies. Mostly, it was a great bonding experience for all of our tour members to share the experience together. There is no doubt that there is immense opportunity for cross border partnerships. I wish Orchard the best of luck in figuring out your Chinese strategy. They loved learning about Orchard’s role in the market. It was great traveling with you. Jason

  • Xelnaga

    “There are currently 2,000 Chinese originators, and there were over $50 billion of Chinese loans originated last year”——the data is till June 2015 may be.