Caixin
Jun 21, 2019 08:10 PM
FINANCE

Top Peer-to-Peer Lender to Shift Strategy After Latest Fundraising

People visit the booth of P2P lender Dianrong during an exhibition in Shanghai in November 2013. Photo: IC Photo
People visit the booth of P2P lender Dianrong during an exhibition in Shanghai in November 2013. Photo: IC Photo

Dianrong, one of China’s largest peer-to-peer (P2P) lending platforms, said it’s planning a shift in strategy to focus on cooperating with traditional financial institutions as China’s regulators continue to tighten their grip over the industry.

The move was revealed on Thursday as the Shanghai-based company confirmed (link in Chinese) it had completed a new round of fundraising led by the private equity arm of Standard Chartered Bank, which first invested in the company in 2015. Dianrong didn’t reveal how much it had raised, although the Financial Times reported in April that the company was targeting $100 million as it battled to cope with a tougher regulatory environment.

Dianrong, which has been compared to U.S. online giant LendingClub, is among thousands of P2P lending platforms hit by a long-running crackdown on an industry plagued by fraud, reckless lending, delinquent borrowers and usurious interest rates. Earlier this year, the company closed some 70% of its brick-and-mortar outlets — a move co-founder Kevin Guo said was made to comply with regulatory guidelines, but which sources close to the company said was partly due to cashflow problems. Employees took to social media to complain their wages weren’t paid on time.

This is Dianrong’s seventh round of fundraising since its establishment in 2012. In addition to Standard Chartered Private Equity (SCPE), other investors include Affirma Capital, a private equity firm spun out of SCPE, and existing shareholder Dalian Finance Industry Investment Group, which is backed by Japan-based financial services group Orix Corp.

Shifting regulatory policies

“The internet finance industry is in the final stages of a shake-up,” Guo said in Thursday’s statement. “In the face of continuous shifts in market conditions and regulatory policies, Dianrong’s management is constantly adapting to the changes and adjusting the company’s business strategy.” After this latest round of funding, Dianrong will focus on leveraging its technological strengths to cooperate with traditional financial institutions, he said.

That likely means the online lending platform will transform itself into a services company that helps those institutions offer loans. Guo told Caixin that “supporting loan issuance will definitely be the direction (the company is heading in).”

The strategy of leveraging technology to become service providers looks set to be the way forward for P2P lenders given the less welcoming regulatory environment, according to several P2P lending industry insiders. They told Caixin that authorities in Shanghai, the country’s financial center, have a generally negative view on P2P lending, and the future of the P2P registration program in the region remains gloomy.

During the P2P platform crisis in 2018, Dianrong experienced liquidity problems, which annoyed Shanghai’s financial regulator as it had set Dianrong as an example of good compliance, Caixin has learned. The watchdog asked SCPE to invest in Dianrong to support it, and the private equity firm agreed, provided Dianrong closed its offline stores, which were unprofitable, sources told Caixin.

P2P lending, mostly online, boomed for several years in China as the government sought to provide greater access to financing for small companies and individuals who couldn’t get loans from banks. But a series of scandals and defaults dragged many P2P lending platforms into the mire, leading to a severe crackdown as regulators tightened controls over the previously loosely regulated industry and called for consolidation of the industry. The number of functioning P2P lending platforms has fallen dramatically over the past four years, and stood at 894 in May, down from 1,959 in June 2018. At its peak in late 2015, the industry had 3,383 platforms, according to data compiled by online lending platform Wangdaizhijia.

Contact Reporter Liu Jiefei (jiefeiliu@caixin.com)

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