As China’s Ant Group prepares for the largest IPO on record, another Chinese financial technology firm is going public. And unlike Ant’s decision to publicly sell shares in Hong Kong and Shanghai, online lender Lufax is prepping its IPO for U.S. markets.
Lufax plans to raise over $2 billion in the U.S. at a time when tensions are high between the US and China. In August, U.S. regulators threatened to block Chinese companies from listing stateside.
Lufax’s roots are in peer to peer lending. As an early leader in the space, the company has evolved its lending and wealth management offerings as Chinese regulators cracked down on the sector. For the six months ended June 30, Lufax had a net profit of more than $1 billion on total income of $3.64 billion, according to its IPO prospectus.
Lufax’s business model
The online lender and wealth manager employs what it calls a “hub and spoke” business model matching the right financial products to its users. Its retail credit facilitation hub has connected 13.4 million borrowers with more than 50 banks, trusts and insurers as spokes on the platform.
Lufax offers small business owners access to large-ticket-size funding, while enabling financial institution partners to tap into a fast-growing, high-quality small business segment. To acquire high quality borrowers, the company integrates its direct sales team with a network of channel partners, including the Ping An ecosystem.
On the wealth management side, Lufax offers middle class and affluent customers selections of investment products and one-click portfolios that are aligned with their risk appetite and investment objectives. Its wealth management hub has connections with 429 institutional product providers that offer nearly 9,000 wealth management products to 12.8 million active investors.
Lufax’s integrated account serves as a single interface to connect all borrowers and investors to products, transactions, and services offered through the platform. Upon registering, new customers link an existing bank account to initiate investments and loans to be automatically funded and repaid. The integrated account allows customers to track all transactions, view performance, and automatically sweep balances into investments.
Lufax claims a 93.3% retention rate among wealth management customers in 2019.
Upon first purchase, AI verification tools deploy facial and voice recognition to confirm customer identification, process KYC, and screen for fraud, and then leverage this data via voice bots to confirm whether customers understand the risks of purchasing more sophisticated products.
First-time borrowers have to pass an anti-fraud assessment process before they move onto Lufax’s credit assessment process. It has three key models for credit assessment: an application score model, a risk-based pricing model and a loan sizing model. The whole process is 100% online
The company assesses creditworthiness using traditional factors like debt to income rations and the value of a customer’s assets to assign risk ratings. Every loan applicant must authorize Lufax to check her financial data through the Credit Reference Center of the People’s Bank of China.
The company employs 9,500 loan servicing professionals.
On the “Wealth” section of our Lufax App, investors have the option either to choose the products identified by a robo-adviser or actively select the products they prefer.
The robotic functionality generates experience-based product recommendations matching the investor’s profile based on KYC processes and on the individual investors’ risk appetite.
If an investor want to build his own portfolio, the Lufax platform shows a product mapping of all the major products offered on the app across risks, returns and timelines. Investors are given product disclosures, an interface for viewing historical performance, and a one-click procedure for making an investment.
Every step, every click, every view is recorded by blockchain.
Chinese regulators have cracked down on P2P lending platforms, causing thousands of lenders to shutter their operations. Last year, Lufax stopped offering peer-lending products, and stopped taking funds from small investors to back loans to other individuals.
By June, peer-lending products had fallen to 12.8% of total client assets, and no new loans this year were funded by peer-lending investors. Despite that, Lufax has continued to grow. It’s nearly doubled its customer base of borrowers from around 7 million people in 2017 to nearly 14 million in 2020.