Xiaomi’s XWBank Crossed RMB100bn in Issued Loans in 20 Months

Online direct bank XWbank (aka. Sichuan Xinwang Bank) had reached RMB 100 billion in consumer loan issuance as of August 2018, only 20 months after its inception in December 2016, according to TodayCFC, a local news outlet focused on consumer finance.

Consumer lending is the bank’s major business that had originated a total of more than 30 million loans to 14 million borrowers as of May 2018. The average loan amount was about RMB3300. The delinquency rate is about 0.27%. The average APR is 18%.

The consumer loan product, named Haorendai (好人贷), is not only available on XWBank’s website and mobile app but also on a variety of Chinese online consumer lending platforms or mobile apps, including Ant Cash Now (the online cash loan product of Ant Financial), Didi (mobile ride-hailing), Lufax (marketplace lending), China UnionPay (interbank network), and Tencent.

Funds are mainly from local commercial banks.

Its in-house developed automated system handles over 99% of the loan originations and spends an average of 40 seconds to process a loan.

XWBank’s other businesses include enterprise banking and custody services for online lenders. (The Chinese regulator requires peer-to-peer lending platforms to use custodians and XWBank is one of the approved custodian banks.)

The bank began to turn a profit in the first quarter of 2018 that generated RMB 58 million, RMB 87 million and RMB 95 million in net profit in Q1, Q2, and Q3, respectively.

XWBank is the third direct private bank in China, after MyBank, affiliated to Ant Financial, and WeBank which is an affiliate to Tencent. Different from XWBank and WeBank, Ant’s MyBank has been focused on SME lending.

Source: WeBank, TodayCFC

Sichuan Silver Mi Technology, a wholly-owned subsidiary of Xiaomi Finance, holds a 29.5% stake in XWBank.

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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.

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.

Smart Device Maker Xiaomi Files for Hong Kong IPO

Xiaomi Corp., a leading smart device and internet services provider, has filed today with the Hong Kong Stock Exchange.

Source: Company

Founded in April 2010, Xiaomi launched its first Android-based smartphone in 2011 and now also sells a wide variety of connected devices either developed in-house or by affiliated companies, ranging from healthcare wearables to smart speaker.

The gross margin for Xiaomi’s hardware products only increased to 8.7% in 2017 from 4.4% in 2016. MIUI, the custom Android system pre-loaded in all Xiaomi smart devices, enjoyed gross margins higher than 60% in the last three years.

The company plans to maintain its low-cost strategy for its hardware business, promising the net profit margin for the hardware sales would not exceed 5% in the future.

The average selling price of Xiaomi smartphones was 807 yuan, 880 yuan and 881 yuan (US$138) in 2015, 2016 and 2017, respectively.

Source: Company

Xiaomi has invested in more than 90 connected devices and accessory makers, including Huami which got listed on the NYSE earlier this year. The company let many of these startups use Xiaomi’s Mi brand.

The company claims that more than 100 million devices had been connected to its internet-of-things platform as of March 2018. Some 1.4 million Xiaomi users own more than five Xiaomi hardware products.

While totally dependent on online sales channels in the early years, the company has been establishing a network of physical stores, called Mi Home, since 2015.

The top five distributors for the company accounted for 30%, 27% and 32% of the company’s total revenue in 2015, 2016 and 2017, respectively.

Xiaomi products are now available in more than 70 countries and regions, with India being one of its most important foreign markets.

Source: Company

The MIUI operating system is an important revenue source for the company.

The default apps on MIUI are all customized versions such as Mi App Store, Mi Browser, Mi Music and Mi Video. MIUI generates revenues through a wide range of marketing offerings, such as search marketing on the Mi App Store and push notifications, and consumer-facing paid content or services, mainly third-party games.

The average revenue per user (ARPU) of MIUI was 29 yuan, 48.5 yuan and 58 yuan (US$9) in 2015, 2016 and 2017, respectively.

Source: Company

Launched in August 2010, MIUI had 190 million monthly active users (MAU) as of March 2018. Xiaomi users spent an average of 4.5 hours daily in March 2018. 38 apps on MIUI had over 10 million MAUs, with 18 having over 50 million MAUs.

Source: Company

Xiaomi Finance, which provides consumer loans and investment services to Xiaomi users, accounted for 0.7% of the total revenue and 0.2% of pre-tax net loss in 2017. Xiaomi is restructuring its finance business that its stake in Xiaomi Finance will decrease to 40% after it completes.

Xiaomi’s Smart Wearable Affiliate Huami Lists in the US

Huami Corp., the supplier of Xiaomi smart wearables, has just got listed on the NYSE.

Xiaomi and Shunwei, the venture capital firm co-founded by Xiaomi founder Lei Jun, currently hold 19.3% and 20.4% of the total outstanding shares of Huami, respectively, according to its filing.

The sales of Xiaomi-branded wearable products contributed 97.1%, 92.1% and 82.4% of Huami’s total revenues in 2015 and 2016 and the first nine months of 2017, respectively. Huami depends on Xiaomi’s online and offline channels to sell both Xiaomi-branded and its self-branded products.

Source: Huami Corp.

Mi Band, a low-cost activity tracker launched in July 2014, is Huami’s signature product. Out of the total 45.3 million wearable devices Huami had shipped as of September 2017, 40 million were Mi Bands.

Activity tracking bands, including Mi Bands and those under Huami’s own brand, were the main revenue generator that contributed 81.7%, 85.8% and 73.2% of the total revenues in 2015, 2016 and the first nine months of 2017, respectively.

Xiaomi Mi Band (Image: Xiaomi)

Other products Huami makes include smartwatches, smart body scales, and accessories.

The total shipments in 2015, 2016 and the first nine months of 2017 were 14.4 million, 17.8 million and 11.6 million, respectively.

Image: Amazfit

Its own brand, Amazfit, is positioned as a premium brand as compared to Xiaomi’s Mi brand and has had a higher gross margin than that of Xiaomi-branded products since 2016. In the first nine months of 2017 Amazfit products accounted for only 4% of the total shipments but generated 17.6% of the total revenue for the company.

The accompanying mobile apps of all the hardware products claimed 49.6 million registered users as of September 2017. Huami hardware and software products collect over 10 dimensions of measurement, including heart rate, ECG, weight, body fat compositions, GPS running track, steps and sleeping duration.

The company doesn’t maintain its own manufacturing facilities but relies on a number of contract manufacturers.