Online Marketplace Lender China Rapid Finance Files for US IPO to Raise US$100M

China Rapid Finance, which operates an online consumer lending marketplace, has filed for IPO on the New York Stock Exchange to raise up to US$100 million.

Established in 2001, the company rolled out the online lending marketplace in 2010 and began facilitating short-term loans to consumers in the fourth quarter of 2014. Before the online platform, the company’s business was helping Chinese financial institutions, including Bank of China and China Construction Bank, create credit solutions, according to the company.

Since November 2014 the company has been using an automated system to assess and price credit risk of borrowers. Apart from traditional data points from the credit reporting platforms of Chinese central bank, credit bureaus, data vendors, the company also sources unstructured historical behavioral and transactional data of borrowers from online services including social networks, online travel agencies, e-commerce platforms and payment service providers.

The company’s target borrower base are Chinese EMMAs, or emerging middle-class mobile active users, many of who have quality employment records but no credit history or bank-issued credit cards. The principal uses of the loans range from shopping, entertainment, daily supplies and phone bills to business expansion and home improvement, according to China Rapid Finance.

The company’s products are thus available through its mobile app.

image credit: China Rapid Finance

It’s current offerings are consumption loans and lifestyle loans, with the latter being larger, longer-term loans. Principal amounts generally in the range of RMB500 (US$72) to RMB100,000 (US$14,400). The maturities of loans facilitated by the platform range from one day to 36 months.

The platform charges borrowers transaction fees and investors service fees. Transaction and service fees net of customer acquisition incentives were US$60.3 million, US$58.9 million and US$58.8 million in 2014, 2015 and 2016, respectively. More than 85% was generated from fees for lifestyle loans while consumption loans accounted for 99% of the total loan volume.

It makes minor revenues from micro-credit loans extended through its subsidiary, Haidong.

The company incurred US$30 million and US$ 33 million in 2015 and 2016, respectively.

The company acquires borrowers through channels including social networks, online travel agencies, e-commerce platforms and payment service providers. With these online channels and the automated system, borrower acquisition costs were largely lowered that was US$20 and US$17 in 2015 and 2016, respectively, primarily consisting of cash incentives offered to investors, while the average customer acquisition cost for consumption loans was previously as high as US$770-800 per borrower with the direct sales through a salesforce and US$80-100 through other online channels.

The investors on the platform currently are mainly high net worth and family office investors.

The company claims it had facilitated more than 10.7 million loans to more than 1.4 million borrowers as of the end of 2016. New borrowers acquired in 2015 and 2016 were approximately 600,000 and 718,000, respectively. 67% of the total borrowers were repeat customers as of December 2016.

89% of all loan volume originated in 2016 consisted of prime and near-prime borrowers, whose creditworthiness the company believes is roughly comparable to FICO scores of between 660 and 720. The annualized average default rate has historically been 7 to 8% for lifestyle loans and 2% for consumption loans. The platform provides Safeguard Program, a risk reserve fund service, which compensates investors who have opted in in the event of default, and charges a fee for the management of the service. 质保专项款在14年至16年的计提比例为本金的12%,15%和18

A handful of other Chinese online marketplace lenders, or online peer-to-peer lending platforms, are also eyeing IPOs in the U.S. or Hong Kong in this year, that include Lufax, backed by Chinese insurance giant Ping An, PPdai.com and Dianrong.com, according to local media reports. Fenqile, which provides installment payment plans to consumers to its online retail site, is also reportedly planning an IPO. Yirendai that listed on the New York Stock Exchange in late 2015 is so far the only public company in online peer-to-peer lending.

There were 2236 peer-to-peer lending sites in China as of March 2017, according to peer-to-peer lending market research site P2P001, and a total of 2598 sites were gone, either being fraudulent sites or shut down by owners, over the past years. It is expected there’ll be further

Chinese authorities have issued a series of regulations for the online lending market and launched an investigation in April 2016. There were a number of high-profile frauds in the last couple of years. Yirendai reported a major organized fraud incident in 2016. China Rapid Finance claims they’re in full appliance with those regulations.

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Tencent’s Active Mobile Payment Users Reached 600M in Q416

Monthly active users of Tencent’s mobile payment services and average daily payment transactions through them both surpassed 600 million in December 2016.

Red Packet transfers, however, are counted as payment transactions and account for the largest portion of the total transaction volume, followed respectively by payments to online businesses and at physical locations, according to Tencent management.

The breakdown among WeChat Payment, QQ Wallet and third-party mobile businesses who have added either/both of the two mobile payment services isn’t disclosed.

Payments and cloud services recorded RMB17 billion in revenue in 2016, so far the least profitable segment for Tencent that the combined cost of revenue is as high as RMB14 billion. The company believes their cloud service is the No. 1 in gaming and video segments in China.

Source: Tencent

Tencent’s 2016 revenues increased 41% from the previous year, mainly driven by revenue growth in smartphone games. Tencent recorded RMB70.8 billion in total gaming revenue for 2016, a 25% year-over-year growth. NetEase, its distant competitor in gaming, recorded RMB28 billion in gaming revenues last year.

Smartphone game revenues increased 80% year-over-year to RMB38.4 billion in 2016. ARPU of mobile game is RMB145-155 in the fourth quarter.

Honour of Kings, in-house developed mobile game and similar to Tencent’s own LoL in theme and design, surpassed 50 million daily active users as of the end of 2016.

Social networks revenues, generated from premium subscriptions, virtual items and paid digital content, increased by 54% year-over-year to RMB37 billion, mainly driven by sales of digital content and game-related items.

Tencent Video’s paying users surpassed 20 million in 2016. iQIYI and Youku-tudou, its direct competitors announced 20 million and 30 million paying users in June 2016 and December 2016, respectively. Tencent believes they are the No. 1 in terms of mobile video views.

Daily active users of Karaoke service WeSing reached 35 million as of the end of 2016, more than doubled year-on-year. It monetizes, like many other Chinese Karaoke services and live streaming services, through virtual gift sales.

Daily paying readers of its online literature publishing platform were around 2.5 million, more than doubled year-on-year.

Source: Tencent