China’s P2P lending marketplace has exploded over the past couple of years, but until now, no company has gotten big enough or ambitious enough to look at an IPO in the US. But that changed this week, when P2P lending firm Yirendai filed its F-1 form to the SEC, announcing its intent to list on the New York stock exchange in a US$100 million intial public offering.
In case you’re not familiar with P2P lending, Yirendai and services like it allow anyone with money to become a lender, and anyone who needs money to apply for a loan. On Yirendai, prospective lenders can select loans they’d like to buy into based on the total sum, payback period, and interest rate. Prospective borrowers submit an application and are assessed by Yirendai’s credit team; if successful, their loans are listed on the site. Yirendai and other services like it make their money by taking a cut of the returns (and sometimes also through additional fees). Yirendai also offers some additional services like “automated investment,” which matches lenders with borrowers automatically.
In general, the advantage of sites like this is that you can lend (or borrow) relatively small sums of money – lending options, for example, start as low as RMB 100 (US$15). But although the sums are low, Yirendai does a lot of business. Its website claims that in the past seven days, more than 3,200 loans have been issued through its platform, and more than 1.5 million users earned interest on the money they lent.
The company’s SEC prospectus claims that from its inception in 2012 to now it has issued US$1 billion in loans, with a year-on-year loan volume growth of 700 percent. It claims that over the first six months of 2015 it had more than 62,000 active borrowers and more than 59,000 active investors/lenders, facilitating more than US$597 million in loans. During that same period, the company says it generated US$79 million in net revenue.
Yirendai is a wholly owned subsidiary of a Chinese financial services company called CreditEase, and CreditEase would remain a majority stakeholder in the company following the IPO. Assuming the listing is successful, Yirendai would be listed on the NYSE under the symbol YRD.
Yirendai says its market is expected to grow at a rate of about 25 percent per year over the next few years. But the company faces a lot of competition; China’s P2P market is both crowded and well-funded. This year, for example, we’ve seen Xiaomi-backed Jimubox raise a US$84 million series C, China Rapid Finance raise a US$35 million series C, Dianrong raise a US$207 million funding round, and FirstP2P raise a US$41 million series B, among many others. P2P lending in China probably isn’t a zero sum game – it may be that several of these companies can rise to the top together – but there’s no way everyone’s going to win.
Yirendai cites all the sorts of advantages you’d expect in its prospectus: visionary executive team, superior tech platform, etc. But its largest competitive advantage might be its affiliation with its parent company CreditEase. Though administered separately, Yirendai does work with CreditEase on a number of things including lead generation and credit assessment. It also has access to CreditEase’s decade-long database to facilitate things like risk assessment. These are resources that some of the independent P2P startups out there simply do not have.
Given that China’s P2P market is still relatively new, Yirendai also faces some regulatory risk. Given the growth of the market, P2P lending being banned outright is extremely unlikely, but some of the site’s specific products could be deemed non-compliant as China’s regulators iron out a more solid regulatory framework for the nascent online industry.
What do you think of P2P lending? Would you invest?
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