ChinaFintech – All Major Chinese Apps Now Extending Consumer Credit

Toutiao, a leading mobile content platform, and Ofo, a mobile bike rental service, have recently added consumer loan offerings onto their apps. Now almost all major mobile apps in China have begun offering credit to their users, either financing purchases on their online retail platforms or at partner physical stores, or providing unsecured cash loans, or both.

Majors tout instant or near-instant approval decisions made possible through their automated or near-automated underwriting systems, either developed in-house or by third-party lenders or solution providers.

Many claim they apply machine learning, or AI, for credit risk modeling. Their data sources include their own online services and third-party alt-data vendors.

Alternative data is widely used by the local alternative lending industry as China doesn’t have a well-established consumer credit reporting market and the credit information database operated by the central bank serves mainly established financial institutions. Some major Chinese internet companies have data points considered having high predictive values for credit decisioning, such as payment histories, and online and offline purchases.

Thanks to the widely adopted alt-data-assisted credit decisioning, tens of millions of Chinese consumers with previously limited credit histories or limited access to credit now have a variety of credit options on the mobile apps they are using on a regular basis.

By pushing loan offerings to the pre-approved users, the borrower acquisition costs are significantly lower than through traditional offline channels.

While many internet companies partner with established financial institutions or online lenders, major internet companies like Ant Financial (Alibaba’s finance arm), JD and Tencent have been funding loans through their own financial subsidiaries or affiliates. ABS (asset-backed securities) backed by consumer loans became a major source of capital for some of them, particularly Ant Financial which was the biggest issuer of ABS in China in 2017.

A few tech giants have become major players in China’s consumer finance market. Ant Credit Pay, a revolving credit line available to qualified Alipay users, announced 100 million customers in mid-2017. Weilidai, the cash loan available on WeChat and Mobile QQ of Tencent, reached RMB100 billion (US$15 billion) in outstanding loans in 2017.

Given the ongoing regulatory tightening on internet-based consumer finance, some online consumer lenders with end-to-end capabilities plan to switch focus to become more of a lending technology solution provider. Ant Financial announced in May that the Ant Credit Pay would introduce third-party funding partners, banks and other financial institutions. JD Finance, the finance arm of JD, said in April this year that they planned to sell all loan receivables to financial institutions and then focus on providing technology platforms.

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ChinaFintech – Meituan’s Finance Business

Meituan, the leading platform for local services, recorded RMB1.73 billion and RMB74 million in loan receivables in 2017 and 2016, respectively, according to its IPO filing.

After obtaining a license for small loans in November 2016, Meituan Xiaodai (美团小贷) began to provide businesses on its platform unsecured loans with terms ranging from 6 to 18 months. There were 5.5 million businesses on Meituan platform as of the end of 2017.

The company has also begun extending credit to users. Meituan Shenghuofei (美团生活费), unveiled earlier this year, is a short-term cash loan.

Revenue sources of its loan business include interest income from balance-sheet loans and facilitation fees from loans funded by banks and other financial institutions.

Meituan runs credit screenings using big data techniques and has implemented anti-fraud systems. It also provides guarantee services for certain borrowers to banks and other financial institutions.

Its small loan company took out a one-year term loan from China Merchants Bank in 2017 at an interest rate of 4.785% per annum.

Apart from the loan business, Meituan also owns payment service company Qiandaibao (钱袋宝), which holds a license for non-financial institutions to run online payment services, and a 28.5% stake in Jilin Yilian Bank (吉林亿联银行), a private bank opened in May 2017. The revenue from Qiandaibao since it was acquired by Meituan in August 2016 has been minimal and it has also contributed a minimal loss, according to the Meituan filing.

ChinaFintech — Xiaomi’s Finance Business

Xiaomi Finance, the online finance arm of smart device maker Xiaomi, accounted for 0.7% of Xiaomi’s total revenue, or RMB802 million, and 0.2% of its pre-tax net loss, or RMB83.6 million in 2017, respectively, according to its IPO filing. The total assets of Xiaomi Finance accounted for 14.1% of Xiaomi’s total in 2017.

Update: Xiaomi Finance accounted for 0.9% and 0.22% of Xiaomi’s revenue and pre-tax profits, respectively, but 13.55% of its total assets as of March 31st, 2018, according to its prospectus filed withThe China Securities Regulatory Commission (CSRC).

Xiaomi is restructuring its finance business that its stake in Xiaomi Finance will decrease to 40% after it completes.

Since 2015 Xiaomi Finance has added products and services in supply chain financing, consumer lending, payments, distribution of retail investment products and insurance.

Xiaomi provides consumer loans through mobile apps including Xiaomi Loans, Xiaomi Finance and Xiaomi Wallet. The loan receivables were RMB101 million, RMB1.6 billion, RMB8.1 billion as of the end of 2015, 2016 and 2017, respectively.

The consumer loan offerings include installment payment plans for the purchases of Xiaomi hardware products. Xiaomi Finance paid RMB 400,000, RMB 200,000 and RMB3.3 million to Xiaomi for hardware products sold through it in 2015, 2016 and 2017, respectively.

Leveraging the user data collected mainly from Xiaomi devices, Xiaomi Finance has developed proprietary consumer credit assessment and risk management systems. MIUI, the custom Android system pre-loaded in all Xiaomi connected devices, had 190 million monthly active users as of March 2018, according to Xiaomi’s filing. Xiaomi and Xiaomi Finance will continue to share their data with each other after restructuring.

Beijing Xiaomi Electronic Software, an affiliate of Xiaomi, has a minor stake in XWbank, a direct bank established in late 2016.

For the online payment and settlement services provided by Xiaomi Finance, Xiaomi pays fees to it. The amount was RMB40.3 million, RMB43.9 million and RMB49.9 million in 2015, 2016 and 2017, respectively.

Xiaomi Finance pays Xiaomi for online marketing services and other support services. It paid RMB9.7 million, RMB1.8 million and RMB70.8 million in 2015, 2016 and 2017, respectively, for online marketing services to Xiaomi.