Fintech Focus: Qudian Adapts to New Environment
Qudian Inc. was the toast of the town when it made a $900 million initial public offering (IPO) in October, becoming the largest such offering in New York for a new group of Chinese financial technology (fintech) companies. But after a brief rally, things quickly went south for the stock amid a regulatory crackdown and concerns over the company’s ratio of bad loans, even as it announced forays into new businesses such as auto financing.
In December, Qudian was further rocked by lawsuits accusing it of false and misleading information in its IPO documents. Despite the string of setbacks, Qudian’s net income grew 80% in last year’s fourth quarter. But its stock hasn’t fared as well, losing more than half of its value since its IPO.
Qudian is closely tied to Ant Financial Services Group, one of its principal shareholders and owner of the popular Alipay electronic payments service and other financial products. The company talked to Caixin in a written interview about recent developments at the company. The following are the company’s responses.
Caixin Global: How has Qudian changed its business after regulatory curbs last year on the online lending industry?
Qudian: Our company has been working closely with our partners to operate in accordance with new regulations. For example, while most lenders were charging over 36% annual percentage rate (APR), we self-enforced a 36% APR cap across all our products starting April 2017, well before the new regulations were introduced in December 2017.
Many noncompliant players have exited because they don’t have the cost structure or risk management know-how to operate after new regulatory requirements were introduced. We believe compliant players provide an important service to underserved users in China that cannot get credit from traditional financial establishments, and are a much better alternative to black-market lenders that charge extremely high interest rates or resort to violence when collecting loans.
What were the company’s considerations for getting into the auto leasing business?
In light of detailed guidance issued by regulators in December, we looked for opportunities to continue to grow our business that would fit well with regulators’ objectives, while at the same time, leverage our core strengths.
Among our 62 million registered users and 26 million approved users, only about 5 million to 7 million users took out loans each quarter last year, leaving 19 million high-quality, credit-approved users inactive. Since we don’t have the know-how to carry out large unsecured cash credits, it was a natural decision for us to re-engage these users through large, asset-backed consumption loans.
China’s new-car purchase market is huge, but the penetration rate for financial leasing solutions in new-car sales is only 5%, compared with the 46% in the U.S, according to industry reports. China’s new-car sales growth has been stagnant in recent years within first-tier cities, which are already saturated, while traditional dealerships have found expanding into lower-tier cities not cost-effective.
We target first-time car buyers in lower-tier cities, who are typically working-class young people between 20-30 years old and have a monthly income of around 5,000 yuan ($792) to 10,000 yuan. They often find traditional financing methods unaffordable, especially with high down-payment requirements. As an alternative, we offer a lower down-payment requirement and monthly repayment of around 2,000 yuan to 4,000 yuan.
What is your current arrangement with Ant Financial in acquiring new borrowers?
We are one of the Alipay ecosystem partners. We provide access to credit on the lifestyle section of the Alipay consumer interface along with other lenders. Our services also appear on a third-party landing page that is accessible after clicking the “more” button on Alipay’s consumer facing interface.
How is Qudian’s bad-loan ratio calculated? Why is it significantly lower than the bad loan ratio of peers?
We disclose number of loans that are overdue for more than 30 days as a percent of all loans provided during that period. Qudian’s bad-loan policy is to write off loans over 180 days past due.
We are able to achieve a lower bad-debt ratio compared to competitors because we have accumulated a large set of data from which we perform analytics for our risk model. In total, we have facilitated over 130 million credit transactions on our platform by the end of December 2017, from which we can draw information about repayment and delinquencies.
What are the company’s current bad loan collection methods?
We remind users through mobile apps, text messages and also give them calls to politely remind them to repay. We do not condone any violent or uncivilized collection methods. Our key risk management relies on pre-loan facilitation data analytics to keep bad users out rather than relying on aggressive collection means to recover bad loans.
What kind of safeguards has Qudian put in place to protect customers’ personal data?
Access or usage of data by Qudian is done only with users’ consent for credit approval. All data are stored in secured cloud servers. Our data transmission uses Advanced Encryption Standard, one of industry’s highest standards, and we have stringent internal policies in place to safeguard data access and usage.
What are your main areas of focus for developing the business in the next year?
The market opportunity for underserved consumption credit remains very large and we continue to focus facilitation of such credit with licensed funding partners. We will continue to serve our existing customers better by providing more attractive services and product offerings.
Contact reporter Liu Xiao (firstname.lastname@example.org)
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