The world’s most valuable peer-to-peer lender is shifting away from the
China’s Lufax, short for Shanghai Lujiazui International Financial Asset
Exchange Co., is valued at $18.5 billion, far more than peers like San
Francisco-based LendingClub Corp. At
the end of October, it had an estimated 13% share—the largest—of China’s $109
billion market for matching small borrowers with lenders, according to industry
But the company is pivoting away, shifting into China’s booming
retail-investing market with online accounts that let clients trade stocks,
mutual funds and fixed-income products. Lufax says it is going where the growth
is, and hasn’t been influenced by concerns about “P2P” lending, which suffers
from growing skepticism abroad and soaring defaults at home. The shift comes
ahead of a planned Hong Kong initial public offering by Lufax in
the second half of 2017 that could raise $5 billion at a valuation of $25 billion, according to people familiar with
“The concept of wealth management which took off in the U.S. in the
1970s…we think China in the next 10 years is going to go through that in an
accelerated way,” Lufax Chairman Greg Gibb, a former McKinsey &
Co. consultant, said in an interview. He declined to comment on the IPO.
Lufax’s pivot reflects the fast changes in the financial-technology
The company—an affiliate of Chinese financial giant Ping An
Insurance (Group) Co.—was founded
six years ago with a business model like that of LendingClub, offering a
matchmaking platform that lets customers invest in loans to individuals and
small businesses. Of Lufax’s $56.9 billion in client assets, such P2P loans
still account for around a third—though the company expects a drop to 15%—and
yield an average of 8.4%.
But investors globally are souring on P2P lending, which tends to be less
regulated and potentially riskier than traditional bank lending. LendingClub shares have dropped about 75%
since its December 2014 New York IPO. In China, hundreds of P2P lenders have
collapsed, including high-profile Ezubo Ltd., whose executives were
arrested and accused of defrauding thousands of small investors of $7.6 billion.
Now, Lufax and rivals are pushing sales of funds and other investment
products. The value of such “wealth-management” products rose 12% to 26.3
trillion yuan ($3.8 trillion) in the first half of 2016, according to China
Banking Wealth Management Registration System disclosures. As of the end of
2016, nearly 100 million people had bought such products online, up 10% from a
year earlier, according to a survey by the China Internet Network Information
Competition is fierce, with offerings from banks, insurers, startups like
Lufax and the financial arms of tech giants like Alibaba Group
Holding Ltd. that range from
exchange-traded funds to insurance products, returning up to 6%, as well as
apps for easy trading over mobile phones. Regulators have started raising
concerns because it isn’t always clear what the products are invested in.
Lufax doesn’t yet turn a profit, but hopes to generate earnings next year
as the money it spends to attract customers declines, Mr. Gibb said.
Cao Zhi, a 33-year-old working in Shanghai’s banking industry, first put
money into a Lufax account a year ago, drawn by attractive rates, liquidity and
the Ping An connection. At the end of the year he moved his money to a P2P
lender backed by the Guangzhou city government.
“Both platforms are backed by parties with a strong reputation, so all
things being equal, I went for the one with higher interest rates,” he said.
Lufax sells more than 3,500 fixed-income, money-market and mutual funds
and insurance products sourced from domestic financial institutions; customers
can buy via mobile phones and online accounts. It collects fees from financial
institutions for listing their products and from customers when they buy mutual
funds. The company also operates a secondary exchange where investors can trade
Big banks and other traditional financial firms have dominated the
wealth-management market, but Lufax says it offers higher returns and charges
lower fees than many of them. At the end of September it had 25.5 million
registered users, the company said, 6.55 million of whom hold Lufax products or
have made a transaction in the past 12 months.
LUFAX BY THE NUMBERS
Registered users, up 39%*
Active users, up 80%*
Retail-customer assets under management, up 56%*
New loans by consumer-finance platform Puhui Financial, up 2.8 times**
Total transaction volume, up 3.6 times
User and asset figures as of Sept. 30; loan and transaction figures for the
first three quarters of 2016
*From the beginning of 2016
same period in 2015.
for the original article from Wall Street Journal.