The rise of the Asian marketplace lender
If 2015 was the year the US online lending industry came into its own, this year should see the same happening in Asia. For a market that is in its infancy and yet completed $132 billion in peer to peer transactions during 2015 in China alone, Asia is certainly developing its own robust, online lending sector. To put that in perspective, the largest marketplace lender for consumers in the US, LendingClub, has loaned $11 billion in total since 2009. The players that will shape the future of the Asian financial services industry are still emerging as institutional and government investors have participated in recent funding rounds totaling $100 million to $1 billion. Growth though is not without its challenges, though. Asia’s particular blend of large base of potential household and small business borrowers, a highly regulated traditional banking system, and a nascent credit rating industry has the makings of a more efficient market as new players step in. Countries like China have encouraged P2P players to enable new capital formation (there are nearly 5000 P2P platforms in China). But with all these new players, many are playing fast and loose with the money flowing through their marketplaces. Executives at Ezubao, one of the biggest Chinese P2P lending platforms, just admitted to fronting fake borrowers and pocketing the funds in an apparent $7.6 billion ponzi scheme that bilked approximately 900,000 investors out of their money. In countries that don't have as robust of a credit scoring industry as the US does, these startup financial services companies need to get creative about how to determine creditworthiness of new Asian borrowers (both consumers and small businesses). Asian online lenders have used 2 different approaches to formulating lending policy: firms are either creating their own homegrown solutions (and this requires a license, for example, in China) or they're partnering with foreign providers to help build credit models. Almost $2 billion of risk capital just flowed into online lenders in Asia. Here are three of the highest profile companies to launch and raise war chests in the Asian online lending space: Lufax is a marketplace lender that began in 2011 as a division of Ping An, China’s second largest insurance company. Ping An is also one of the few companies in China to have been granted a license to collect data to create credit rating scores. In an undisclosed series announced in January, Lufax raised $292 million and according to industry sources is reportedly valued at $18.5 billion. According to Bloomberg:
Shanghai-based Lufax had 18 million registered users at the end of December, according to Daiwa. Of these, 3.63 million were active while trading volume was more than 1.6 trillion yuan, according to the Japanese brokerage, making it the biggest of China's P2P lenders.In January 2016, WeLab raised $160 million from the Malaysian and Chinese state funds. WeLab is the parent company of Hong Kong’s WeLend and China’s mobile lending platform Wolaidai. The company targets tech-savvy young consumers who see going into a bank office as an unwanted hassle. The firm has also developed its own credit assessment platform, WeDefend. Also in January 2016, JD Finance raised $1 billion from the likes of Sequoia Capital China, China Harvest Investments, and China Taiping, bringing the firm's valuation up to a reported $7 billion. JD Finance is the finance arm of one of the largest ecommerce companies in China, JD.com, which with a new financial arm is moving into consumer credit. According to Fortune:
JD recently partnered with U.S. startup ZestFinance to provide credit risk scores to Chinese lenders so they can extend credit to consumers. With the partnership, Chinese consumers shopping on JD.com are able to apply for a line of credit to buy items from the e-commerce site.This conversation wouldn’t be complete without mentioning Alibaba and Tencent. It's a market where everyone is an online lender and Alibaba, the massive Chinese ecommerce firm, has also shown an interest in getting into online finance. Alibaba, presently worth $153.82 billion in public markets, has its own online finance affiliate, Ant Financial. Ant Financial's roots are in payments, running China’s biggest online payment service, Alipay. It also manages Yu’E Bao, the nation’s largest money-market fund with more than 600 billion yuan of assets. It also has a foothold in banking with a stake in MYBank, a private online lender. Tencent, one of China's largest Internet firms, launched Webank in January of 2015. Users of the firm's WeChat, a massively popular messaging app across Asia, can already apply and receive a personal loan in minutes or send money to another WeChat user. Venture investors understand what's at stake in the Asian online lending market. For some of the markets in Asia, it's not just about taking something offline and making it more efficient -- it's about making capital available to many people and businesses never had access to it in the first place. And with these latest large investments, we may very well know today who the leading players in online lending will be in the future.