Yirendai, China’s largest P2P consumer finance platform, expands beyond lending

• More than 54% of loans are facilitated through mobile applications.
• In the wake of the regulatory tightening of internet finance, Yirendai ramped up its risk management capabilities
• Yiren score, modelled after the FICO score, is compiled by a program constructed like a web crawler

Yirendai is an online consumer finance marketplace founded in March 2012. Technology-driven and user-centric, the platform efficiently matches borrowers with investors. The platform is built on two customer segments: prime borrowers who are credit card holders with a salary income; and investors who are seeking wealth management products. The platform provides borrowers with fast and convenient access to consumer credit at competitive rates, while offering investors easy and quick access to an alternative asset class. Yirendai differentiates itself from other peer-to-peer (P2P) lending platforms through its risk management systems, customer acquisition, and insurance programs for its borrowers.

Yirendai's new credit scoring system

In 2017, the company launched Yiren scores, its new credit scoring system, aimed at accurately characterising borrowers' credit profiles. The Yiren score is modeled after FICO scores in the United States and compiled by a program constructed like a web crawler which gathers available data, such as credit card history or housing allowance tax deductions. Under this new credit scoring system, the platform upgrades its risk grid with five segments and divides potential borrowers into distinctively different credit segments.

The company's expansion through new channels, products and partners

Regarding customer acquisition, the company is establishing new acquisition channels and introducing new loan products. It utilises online channels, such as search engine marketing, search engine optimisation, partnerships with internet companies and internet traffic acquisition from third-party online loan products marketplaces. Particularly, 54.4% of loans were facilitated through mobile applications in 2017. It also acquires borrowers through referrals from CreditEase’s nationwide service network across over 267 locations in China. In 2017, 27.1% of borrowers were acquired through referrals from CreditEase. The average size of loans sourced through offline channels tend to be larger than that of loans sourced through online channels.

The company partners with China Guangfa Bank to ensure proper custody of investor funds, meaning that loan principal and interest repayments will not cross over with Yirendai’s working capital. Additionally, the company works with People’s Insurance Company of China (PICC) Property and Casualty to provide surety insurance for loans organised through Yirendai Lending. Borrowers pay an insurance premium and lenders receive their principal and expected interest in the event of default.

Increasing its market share of loans

Yirendai hopes to continue increasing their market share and expanding their product offerings to become a more comprehensive financial services platform for borrowers and lenders. The company facilitated loans in an aggregate principal amount of approximately $11.4 billion (RMB 73.9 billion) and served 1,092,938 borrowers and 1,300,398 investors from inception in March 2012 through December 31, 2017. In the first quarter of 2018, loan originations grew 65% year-over-year to $ 1.8 billion (RMB 12 billion), bringing its total outstanding loan balance to $6.8 billion (RMB 44 billion). Yirendai is expanding beyond its P2P roots by creating an online wealth management platform called Yiren Wealth to distribute funds and insurance products online.

Global Comparison

Funding Circle (UK)

Funding Circle is a P2P lending platform launched in 2010 which caters solely to small businesses. The company acts as an intermediary between investors and small business in need of funds. The company’s platform conducts credit assessment, facilitates the loans and collects repayments. It seeks to differentiate itself from banks, fintechs and the likes of PayPal by offering longer term loans of up to five years. As of September 2018, around 56,000 small businesses in the UK have borrowed $ 7.17 billion (GBP5.6 billion) through Funding Circle. The company went public on the London Stock Exchange in September, and seeks to expand into the US.

SocietyOne (Australia)

SocietyOne was launched in August 2012. As of 2018, it has become Australia’s first marketplace lender to have $500 million in loan originations for its personal loans, agricultural lending and marketplace business, facilitating loans for 20,000 borrowers. It seeks to attain $1 billion by the end of 2019, breaking even by March 2019 as it sustains its upward momentum, boosted by Australia’s mandatory credit reporting and data sharing in 2019. Over the next five years, it targets a 2%-3% market share of the personal and business loan market, and to grow its customer base to 100,000.

SWOT Analysis

Strengths

• Number one in digital cash lending in China
• Strong loan uptake in 2018  
• Cooperation with institutional partners
• Strong risk and compliance control
• Proprietary credit scoring, Yiren Score
• Low sales and marketing expenses compared to loan volume

Weaknesses

• Risk models have not gone through a credit downturn
• Yiren Wealth saw a brief funding disruption in the third quarter of 2018

Opportunities

• Increased institutional funding
• Building Yirendai as a consumer brand
• Creating Yiren Wealth
• Strong demand for financing in the long term

Threats

• Tightening of compliance and regulations
• Increasing shutdown of other P2P platforms
• Economic slowdown
• Increasing fund cost