Chinese millennials are buying hamburgers on instalment, fuelling micro loan industry
For Chinese millennials these days, instalment payments are not just for big purchases. Feel like a hamburger? Want to buy a movie ticket? Buy now and pay later – much later in some cases.
Widely accepted in developed countries, the practice of paying by instalments has grown in popularity in China because high property prices mean most people pour all their money into housing and have little left over for discretionary spending.
The trend is especially pronounced among millennials, whose earning power is lower, giving a boost to the growth of online micro lenders like Lexin Fintech.
Lexin, founded in 2013 by former Tencent Holdings employee Jay Xiao Wenjie, operates the online shopping centre Fenqile – which roughly translates as “happy instalment” – offering a wide range of products from mobile phones and computers to snacks and cosmetics that can be funded by micro loans. A small layer cake can be had for as low as 0.46 yuan per month for three years, or there’s lipstick for only 1.93 yuan (3 US cents) per month for two years. Interest rates differ based on the product price and repayment period but some loans are offered interest free.
“Paying by instalment is becoming a habit among young Chinese [born after 1990],” said Xiao, who took the Shenzhen-based Lexin public on Nasdaq last year. “They prefer instalments because they are more interested in trying innovative things [and] don’t have much money, but are still very optimistic about the future.”
The instalment trend is a stark contrast to previous generations of Chinese who resisted borrowing money, especially for smaller items, only taking out loans for homes, cars and similar major purchases.
Young people in China, however, are more likely to rely on credit for daily consumption items, made easier by mobile payment apps requiring only a few taps on a smartphone screen. As of June this year, Fenqile had 29.2 million registered users and 95 per cent of its customers were under 30 years old.
Xiao, 35, attributed his success with Lexin to keeping on top of social trends in China. While working for Tencent, he noticed that the ratio of people who pay after ordering on various e-commerce platforms was low but that did not equate to weak consumption demand. Rather, demand was strong because shoppers would repeatedly place the same order but then cancel.
“It means a lot of people want to buy products but can’t afford to pay for them in full immediately,” Xiao said. “Instalment payments can solve the problem.”
Although Lexin operates an e-commerce platform, Xiao defines the company as a technology provider, whose core strength is an artificial intelligence-based algorithm that can approve a new user's credit within seconds.
Lexin also operates an “asset light” e-commerce platform thanks to its main investor JD.com, China’s second largest online shopping company, which handles the logistics and delivery functions. “Most of the time orders placed on Fenqile go directly to JD.com and the products are delivered by JD.com’s logistics operation,” said Xiao. “Our core strength is finance technology.”
Xiao said he is less concerned with growing the size of the business. “What worries me more is how to keep management effective [when the company is bigger] and how to adapt to industry developments,” said Xiao. “At the very early stages of company development management was an easy job because everyone had a clear target – getting listed.”
It only took four years for his team to achieve that target, but Xiao said his primary focus these days is meeting society’s need for instalments and micro loans.