Mar 23, 2019 05:27 AM

P2P Sites in Transition to Become Facilitators for Institutional Lenders

Following the Chinese government’s advice after a crackdown, surviving P2P online loan platforms transform into facilitators for institutional lenders. Photo: VCG
Following the Chinese government’s advice after a crackdown, surviving P2P online loan platforms transform into facilitators for institutional lenders. Photo: VCG

As China intensifies a crackdown on the country’s troubled peer-to-peer online lending industry, more and more surviving lenders are transforming into loan facilitators for financial institutions.

Recent financial statements by some of the peer-to-peer (P2P) lenders show a trend of diversifying funding sources away from individual investors and toward licensed financial institutions. Those making the transition include Lexin Fintech Holdings Ltd., 360 Finance Inc. and Alibaba-backed Qudian Inc.

P2P platforms previously built their businesses on matching individual borrowers and individual investors online, cutting banks out of the process. China’s P2P industry, once encouraged by the government as an innovative use of technology to expand financial services to small borrowers, became a focal point of a crackdown on internet financial risks that started in 2016 as lax supervision and fraud exposed a string of scandals and led to the collapse of hundreds of platforms.

As a result of the crackdown, more than two-third of the country's more than 3,000 P2P lenders shut down. The remaining ones were encouraged to transform into licensed online microlenders or third-party platforms, also known as loan-facilitating institutions, which help financial institutions issue loans.

Institutional partners for the P2P platforms include banks, trust companies and licensed consumer finance companies. The shift of funding sources means default risks of online platforms will be spread across the broader financial sector. Local governments including Shanghai and eastern Zhejiang province have issued guidance on how to regulate institutional funding for online lenders.

Lexin, the first U.S.-listed Chinese online lender to report 2018 financial results, said it received 66% of its funding for new loans from institutional partners in the fourth quarter of 2018, compared with 46.5% in 2017, Lexin Chief Financial Officer Craig Zeng said on the company’s earnings call last week.

Lexin now has more than 100 institutional partners. Chief Executive Officer Jay Xiao said the company’s plan in 2019 is to rely not on P2P for growth but instead to have funding partnerships with financial institutions drive this year’s growth.

Another Nasdaq-listed Chinese online lender, 360 Finance, reported Wednesday that its growth for the fourth quarter of 2018 came primarily from an increase in its loan facilitation business, which grew fourfold to $155.4 million in the quarter.

A Lexin insider told Caixin his company and 360 Finance are probably the two P2P lenders with the most institutional partners.

Alibaba-backed online microlender Qudian Inc. was hit particularly hard by the regulatory crackdown last year. Several big shareholders cashed out after the company reported its net profit plunged 32% year-on-year in the first quarter. The company’s stock has lost nearly 80% of its value since the initial public offering in October 2017, one of the largest listings in the U.S. by a Chinese company that year.

Qudian froze its own lending license at the end of 2017 and became the first in the industry to shift from acting as a direct lender to a loan facilitator. The company added 19 new institutional funding partners last year, increasing the total to 99, Qudian Chief Financial Officer Carl Yeung said Tuesday on an earnings call.

Other online lenders have also made solid progress in diversifying their funding sources. New York-listed PPDAI Group Inc. said the proportion of loans funded by institutional partners doubled to 20% in the 2018 fourth quarter from 10% in the 2018 first half. The company said it aims to further increase the proportion to 30% in the first quarter of 2019.

X Financial said 15% of its loans are funded by institutional partners and it expects the level to increase to 40% this year.

Other online lending platforms including Yirendai Ltd.,, China Rapid Finance Ltd. and Hexindai Inc. have yet to report 2018 results.

Contact editor Han Wei (

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