P2P platform Yirendai ready to move up a financial league or two, including into wealth management
Analysts say that while larger platforms have scope to grow, smaller players will struggle in the face of tighter regulation
Yirendai, China’s largest peer-to-peer lending platform, is looking to raise its profile even higher, with an expanded product offering, the company’s chief executive Fang Yihan has told the South China Morning Post, shrugging off any worries about a regulation-induced slowdown in the industry.
The biggest challenge now facing China’s burgeoning P2P lending sector is compliance.
New rules governing the industry will come into force in August, and according to available drafts, these will impose a limit of 200 000 yuan (US$29,400) on lending to individual borrowers, require the lenders to carry out stricter background checks on all clients, and establish strong contractual relations with custodian banks.
Shares in Yirendai, which is listed on the New York Stock Exchange, plunged 22 per cent on August 24 last year, the day the rules were announced.
The company is majority owned by CreditEase, one of China’s largest fintechs, specialising in small business and consumer lending as well as wealth management for high net worth investors.
Despite many in the P2P industry fearing the stricter regime ahead, Fan however is rather more
“Last year was the year of regulation, and at Yirendai we are happy that this has finally happened.
“Without regulation, a lot of bad things happened that hurt the image of the industry. Some people stopped investing at all, scared off by bad platforms,” she said, and with good reason.
In 2016, the domestic P2P sector was rocked by a number of high profile scandals in which investors saw their savings wiped out.
The most significant involved the platform Ezubao, which was shut down in February 2016 with 21 executives arrested for defrauding more than 900, 000 investors of over 50 billion yuan.
The arrival of the new regulations will give Yirendai scope to grow, Fang said.
“We have applied for a licence, and finally we will be official; once the rules are launched we will be able to move much more quickly,” she adds.
“We are launching a number of new products, and also want to build Yirendai as an actual consumer brand. Before we didn’t make much effort on that – it’s hard, after all, when you are not exactly official. But now we are, this is the right time to do so,” she said.
The benefits to peer to peer platforms of official recognition, however, come with a price, with companies having to pay for these additional compliance costs, which will have an effect on investor returns.
Double digit returns for investors were commonplace last year, but will become harder to find.
But with its scale, larger players such as Yirendai that will be the most likely to gain a competitive advantage from the tighter rules.
“For them, the August transition should be easier as they have the resources to set up custodial bank accounts, increase marketing spend to maintain brand relevance, and adjust to the new restrictions and limits,” said Zennon Kapron, managing director of Shanghai-based financial industry consultancy Kapronasia.
“Smaller platforms may find it more challenging to meet the regulatory requirements. We should see some market consolidation, as there are over 2,000 P2P platforms in China at the moment it is nearly impossible all will be able to meet the government’s requirements.”
But Fang also says the regulations also give Yirendai the chance to expand beyond its P2P roots.
“On the lending side, we are creating an online wealth management platform selling both funds and insurance online,” Fang said.
We already have over 900,000 active users, and hope to grow this by cross-selling to our existing customer case.”
China’s retail wealth management market was worth 120 trillion yuan last year, according to a report by Boston Consulting Group, which expects growth of 12 per cent annually for the next five years.
“Most Chinese P2P companies are ill-equipped to expand into other financial services such as wealth management services,” said Sara Hsu associate professor at the State University of New York.
“However Creditease and its subsidiary Yirendai are better positioned to expand into other areas since they have very carefully developed, strong risk control practises already in place,” said Hsu.
“Similar to other large e-commerce players in China, such as Alibaba and Tencent, Creditease collects large amounts of data that it uses to analyse customer credit worthiness.”
Of course, wealth management is quickly turning into one of the most competitive areas of China’s finance industry, so as well as larger P2Ps, a number of other investment platforms, challenger banks, and international private banks are already targeting this space, as well as China’s traditional banks.
“I don’t think anyone has worked out how to do online wealth management in China yet, no one has found the killer feature,” adds Fang.
China Merchants Bank is considered the largest industry player currently, but still its assets under management in its private banking division are worth just 1.66 trillion yuan.
Yirendai is also experimenting with allowing partners to sell services other lending services via its platforms.
“Our business is growing from being a P2P platform to a platform with a number of partners,” she said.
“We have the traffic, which we want to share and leverage to make more money and enhance our data capabilities.
“There are various business opportunities to build new revenue streams, mostly focused on data and algorithms.”