Though peer-to-peer lending was pioneered in the U.S. by companies such as LendingClub Corp., China is where it’s really taking off.
Internet-based peer lenders there gave out at least $32.5 billion in loans last year, almost quadruple the rest of the world combined, according to U.K. investment bank Liberum Capital Ltd.
It predicts lending in China will almost double this year to $60 billion versus $11.7 billion in the U.S., the second-largest market. In peer-to-peer lending, companies use the Internet to quickly match borrowers and lenders at better rates than banks.
The outsized growth is attracting big-name investors from Tiger Global Management to Alibaba Group Holding Ltd. And it’s testing a state-dominated banking system that’s traditionally favored big government firms at the expense of smaller players.
Soul Htite, the LendingClub co-founder who left to form Chinese lender Dianrong.com about three years ago, said he believes the momentum is just getting started. “The market in China is more profitable because costs are lower and the growth is much bigger,” the 42-year-old entrepreneur said in an interview.
Dianrong, which bundles funds from investors and lends them to smaller businesses hungry for capital, hopes to lead China’s new crop of peer-lending services. It has facilitated about 1 billion yuan ($161 million) of mostly business loans, charging lower rates than the shadow banks that private businesses turn to when shut out of cheaper mainstream credit.
‘Shadow Banking’
“Shadow banking interest rates can go up to 50 percent -- that’s unfair,” Htite said in a May 29 interview in Hong Kong. “There are people who are good risks at 12, 11 or 5 percent.”
For Chinese investors, P2P lending offers higher interest rates than they’d get leaving their money in the bank, with the promise of lower risk than putting their money in China’s volatile stock market.
Lenders claim they lower the risks of default by spreading the cash across a large number of loans. The pace of growth has drawn regulatory scrutiny: Chinese officials are considering what rules are needed to maintain oversight of the sector.
Deputy central bank governor Pan Gongsheng warned in November that most Internet financial companies are “not well-versed” in risk management. Htite welcomes that scrutiny because he says it will bring more clarity and confidence. He adds that while his model bundles loans, each lender effectively signs mini contracts with each borrower, insuring greater transparency.
EBay Trial
Dianrong is looking to expand by partnering with banks and companies, including EBay Inc., to offer loans and other financial services and expand overseas. The startup plans to lend money to Chinese businesses that sell goods to U.S. customers on EBay, Htite said.
The tie-up is still in a trial phase. Loans will be offered to a group of sellers to fund expansion plans such as building warehouses, Daniel Feiler, a spokesman for EBay, said Tuesday without elaborating. “They’re looking to shortcut around Wal-Mart,” Htite said.
Wal-Mart Stores Inc., the world’s largest retail chain, is one of the biggest U.S. importers of Chinese goods. China’s nascent online financing arena isn’t without risk. It’s already crowded with more than 1,500 lenders -- not all sound.
According to Yingcan Group, which tracks the data, 275 lenders went bankrupt or had trouble repaying money last year, prompting regulators to take a closer look at the sector.
Tencent, Alibaba
Yet the prospects of faster growth and higher returns are luring investment. Tiger Global, the U.S. investment firm run by Chase Coleman, bought an undisclosed stake in Dianrong this year.
Tencent Holdings Ltd., Asia’s second-biggest Internet company and owner of the WeChat messaging service, and an affiliate of e-commerce provider Alibaba have stepped into the fray.
In total, 24 peer-to-peer firms have received 3 billion yuan of financing from companies -- including SoftBank Corp., Sequoia Capital and Xiaomi Corp. -- as of September, according to Zero2IPO Group, an industry tracker. Even traditional banks are testing the waters. Dianrong built an Internet financing business for Bank of Suzhou in Jiangsu province, taking a percentage of profits from that operation, Htite said.
The company is currently building similar platforms for four more banks, he said. Dianrong’s future plans include tapping capital from U.S. lenders.
“We want to bring U.S. capital to China,” Htite said. “If there’s a borrower in Shanghai, we can connect them to a lender in Cincinnati. We expect to be able to do that within a year or two.”
bloomberg.com
Internet-based peer lenders there gave out at least $32.5 billion in loans last year, almost quadruple the rest of the world combined, according to U.K. investment bank Liberum Capital Ltd.
It predicts lending in China will almost double this year to $60 billion versus $11.7 billion in the U.S., the second-largest market. In peer-to-peer lending, companies use the Internet to quickly match borrowers and lenders at better rates than banks.
The outsized growth is attracting big-name investors from Tiger Global Management to Alibaba Group Holding Ltd. And it’s testing a state-dominated banking system that’s traditionally favored big government firms at the expense of smaller players.
Soul Htite, the LendingClub co-founder who left to form Chinese lender Dianrong.com about three years ago, said he believes the momentum is just getting started. “The market in China is more profitable because costs are lower and the growth is much bigger,” the 42-year-old entrepreneur said in an interview.
Dianrong, which bundles funds from investors and lends them to smaller businesses hungry for capital, hopes to lead China’s new crop of peer-lending services. It has facilitated about 1 billion yuan ($161 million) of mostly business loans, charging lower rates than the shadow banks that private businesses turn to when shut out of cheaper mainstream credit.
‘Shadow Banking’
“Shadow banking interest rates can go up to 50 percent -- that’s unfair,” Htite said in a May 29 interview in Hong Kong. “There are people who are good risks at 12, 11 or 5 percent.”
For Chinese investors, P2P lending offers higher interest rates than they’d get leaving their money in the bank, with the promise of lower risk than putting their money in China’s volatile stock market.
Lenders claim they lower the risks of default by spreading the cash across a large number of loans. The pace of growth has drawn regulatory scrutiny: Chinese officials are considering what rules are needed to maintain oversight of the sector.
Deputy central bank governor Pan Gongsheng warned in November that most Internet financial companies are “not well-versed” in risk management. Htite welcomes that scrutiny because he says it will bring more clarity and confidence. He adds that while his model bundles loans, each lender effectively signs mini contracts with each borrower, insuring greater transparency.
EBay Trial
Dianrong is looking to expand by partnering with banks and companies, including EBay Inc., to offer loans and other financial services and expand overseas. The startup plans to lend money to Chinese businesses that sell goods to U.S. customers on EBay, Htite said.
The tie-up is still in a trial phase. Loans will be offered to a group of sellers to fund expansion plans such as building warehouses, Daniel Feiler, a spokesman for EBay, said Tuesday without elaborating. “They’re looking to shortcut around Wal-Mart,” Htite said.
Wal-Mart Stores Inc., the world’s largest retail chain, is one of the biggest U.S. importers of Chinese goods. China’s nascent online financing arena isn’t without risk. It’s already crowded with more than 1,500 lenders -- not all sound.
According to Yingcan Group, which tracks the data, 275 lenders went bankrupt or had trouble repaying money last year, prompting regulators to take a closer look at the sector.
Tencent, Alibaba
Yet the prospects of faster growth and higher returns are luring investment. Tiger Global, the U.S. investment firm run by Chase Coleman, bought an undisclosed stake in Dianrong this year.
Tencent Holdings Ltd., Asia’s second-biggest Internet company and owner of the WeChat messaging service, and an affiliate of e-commerce provider Alibaba have stepped into the fray.
In total, 24 peer-to-peer firms have received 3 billion yuan of financing from companies -- including SoftBank Corp., Sequoia Capital and Xiaomi Corp. -- as of September, according to Zero2IPO Group, an industry tracker. Even traditional banks are testing the waters. Dianrong built an Internet financing business for Bank of Suzhou in Jiangsu province, taking a percentage of profits from that operation, Htite said.
The company is currently building similar platforms for four more banks, he said. Dianrong’s future plans include tapping capital from U.S. lenders.
“We want to bring U.S. capital to China,” Htite said. “If there’s a borrower in Shanghai, we can connect them to a lender in Cincinnati. We expect to be able to do that within a year or two.”
bloomberg.com
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