Deal focus: Meili Jinrong targets P2P consumer finance

Of the nearly 3,600 peer-to-peer (P2P) online lending platforms operating in China, more than one third had run into trouble or gone bankrupt as of October, according to Online Lending House, a portal that tracks the industry.

As these platforms proliferated over the past couple of years, it was hoped they would fill a hole in China's inefficient banking system - helping small businesses obtain funding and by giving individual lenders higher investment returns. Venture capital activity grew in tandem with overall market interest. However, the rate of closures has risen sharply since the start of the year, as borrowers default on loans and industry controls become more restrictive.

"Online finance actually doesn't present a huge market opportunity along the lines of what we have in e-commerce and the online auto markets," says Yannan Liu, founder and CEO of online P2P site Meili Jinrong. "Investors and founders were previously too optimistic about this sector. In fact, entry barriers for setting up P2P lending platforms were very low, which led to higher default risks."

Liu, formerly of Merrill Lynch and TPG Capital, co-founded P2P lending site Yooli.com in February 2013. The platform, which received backing from Morningside Venture Capital and SoftBank China Capital, claimed it stood out from the competitive field because credit ratings are accessed by third-party institutions that aren't involved in the transactions.

In September, Liu left Yooli, reportedly due to strategic differences with his co-founders. He spun out Yooli's second-hand car financing business and set up Meili Jinrong. In addition to lending to car buyers, the company now also covers purchases of 3C products (computers, communication and consumer electronics) and home rental.

Liu has no longer holds any shares in Yooli and his new company last week received a $65 million Series A round led by Bertelsmann Asia Investment (BAI). Morningside came back to Liu again, alongside GX capital and Chinese PE-backed online personal finance site Wacai.com.

"When I started Yooli in 2013, investors had already shown their interests in consumer finance," Liu says. "That's why when I set up Meili Jinrong and several investors want to support us."

The company has a separate subsidiary through which it sources customers looking for car financing and matches them with investors on the main platform. A parallel consumer-focused subsidiary - Youyong Fenqi - has also been set up, targeting blue-collar workers who repay 3C loans in installments. Liu notes that this consumer group has a lower risk of default compared to the college students targeted by many P2P lending sites. JD Finance and Alibaba Group's Sesame Credit to assess borrowers' credit ratings.

BAI is also an investor in Fenqile.com, an electronics retailer that allows college students to pay in instalments. The firm has received backing from the likes of JD.com and DST Global.

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• Topics
• Venture
• Greater China
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• Morningside Technologies
• Softbank
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