Lightspeed leads Series B round for China P2P lender PPDai

The size of the round amounts to tens of millions of dollars, with local media identifying the specific amount as $50 million. Sequoia led PPDai's Series A round - worth less than $25 million - in November 2012.

The new capital will primarily be used for operations and the continued enhancement of the platform's online credit scoring system and IT infrastructure. Founded in 2007, PPDai serves as a bridge between individual lenders and small-scale borrowers, essentially helping to meet the credit needs of enterprises that rarely receive support from commercial banks.

PPDai's service is free for lenders, while borrowers pay a commission. The company charges 2% of the borrowed amount for loans with a term less than six months, and 4% for loans with longer period.

P2P lending platforms have mushroomed in China but they are largely unregulated, prompting concerns that low barriers to entry and insufficient collateral mechanisms could lead to a spate of fraud and defaults.

The business model relies on strong risk controls and Cliff Zhang, PPDai's co-founder and CEO, believes his company's credit scoring systems represent a key competitive advantage. By collecting data on borrowers across multiple dimensions, PPDai is able to evaluate default risk as well as compute credit limits and associated interest rates.

"Similar to US Internet credit rating agency Zest Finance, we typically go through approximately 2,000 dimensions of analysis to determine a borrower's default risk. This represents a significant differentiation against the credit risk control systems adopted by most traditional banks," Zhang said.

He sees the next step as improving the systems processing capabilities and bringing big data analysis to P2P microfinance.

According to Reportstack, a market research firm, there were at least 800 online lending platforms operating in China in 2013, up from just 50 two years earlier. Total transaction volume came to RMB100 billion ($16.1 billion). It estimates that 71 platforms went bankrupt last year, including 54 in the fourth quarter alone.

VC firms continue to plunge into the sector undaunted. In January, Trustbridge Partners led a $130 million Series A round for Renrendai, claiming it was the largest transaction ever seen in the P2P space globally.

This followed Northern Light Venture Capital's $12 million commitment to Dianrong, which was set up by the co-founder of US-based P2P lending service Lending Club, while last November Softbank China Capital provided a Series A round of funding for Yooli.

CreditEase, which also claims to be China's largest P2P platform, has received investment from IDG Capital Partners, Morgan Stanley Private Equity Asia and KPCB since its inception in 2006. It expanded quickly and now provides a range of consultation services, including wealth management, credit rating and microcredit lending.

Last year the company teamed up with IDG to create a microcredit fund, which will back other financial services start-ups.

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• Topics
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