Inside the operations of China’s top credit risk start-up: Zane Wang talks about the growth of China Rapid Finance

Zane Wang Zhengyu, the founder and chief executive of China Rapid Finance, says his company has helped some of the largest banks in mainland China underwrite more than 100 million credit cards. His 15-year-old, privately held company was the country’s first supplier of a Chinese-language credit decision engine, which has been implemented by large domestic banks and remains invaluable to determining the creditworthiness of local banking customers.

With its grasp of advanced technology and broad understanding of domestic consumers, China Rapid Finance entered the country’s hot new market for peer-to-peer lending. This nascent industry on the mainland allows third-party investors to lend money to unrelated individuals, or peers, through online marketplaces, not traditional banking channels.

Wang, who previously worked as the global head of analytics at the credit unit of US department store chain Sears, made a big splash in the peer-to-peer lending market early last year by partnering with internet giant Tencent Holdings to launch a unique mobile-based, pre-approved borrower campaign for loans of up to 500 yuan (HK$600).

China Rapid Finance has so far facilitated more than 3.5 million in loans. Its business model generates recurring fee revenue from its borrowers and investors, including transaction and service fees for loans facilitated on its marketplace.

How does your lending platform operate on the mainland?

We help the so-called emerging middle class in China get access to credit. Most of these people would be considered financially active, yet have no access to credit because they don’t have any kind of updated data coverage with the central credit bureau [the state-controlled Credit Registry Centre]. So the traditional banks won’t be able to provide any credit to them.That leaves us with a huge opportunity to provide service. We’re not really a lender, but we help these people get access to loans.

The way we are able to operate is through our proprietary predictive selection technology. We work daily with partners like Tencent and other big data sources to select a large amount of people for credit access based on our own criteria.

We reach out to these people and let them know that they are being offered first-time credit. If they need to borrow, they can just go to our site. Most of these people we pre-select don’t necessarily need to credit now, but they can get it if needed.

We check every applicant if they are in our so-called white list. If so, we offer access to credit. By doing this, we largely cut down on fraudulent applications. We do not invite just anyone to come over because we pre-select potential borrowers.

This methodology has been fully developed in Western countries, particularly in the US. In China, however, this has never been adopted because banks cannot access people’s files without first getting consent from individuals.

How does your platform work with mobile borrowers?

In the mobile space, users get a short message congratulating them that we are offering them credit. If they need to borrow, they just click on the link found on Tencent’s Mobile QQ or WeChat apps. Users will be asked to verify their name, ID number, mobile phone contact and bank card information. We need those to verify that the users are who they claim to be.

These four pieces of information will be sent to their banks, which will come back to us to confirm if all the information received was consistent with their records. Users don’t need to submit any other information.

After that, we ask how much they want to borrow and the time period of the loan. They hit a button and the funds will be in their bank account in seconds. The entire process is automated.

If the borrower needs more than the pre-approved access to a 500-yuan loan, we invite them to one of our data verification centres located in about 100 cities. These will verify their income, employment status and stability of residence to determine if we can extend a higher credit amount.

What differentiates your platform from the competition?

Other than China Rapid Finance, everyone else in this market uses the same strategy of conducting advertising campaigns to increase market awareness. They encourage people to come to their platform to borrow. It’s an open invitation, which has no selection process behind it.

So that’s the major difference with us: we use technology and harness big data sources to control risk. China has many companies with large amounts of consumer data, so we are interested in working with many of them. We want to use as many data partners as possible so that we can increase the number of our customers and cut down our acquisitions costs dramatically. In return, we’ll be able to pass those savings to borrowers [through lower rates].

What is the fundamental challenge in your industry at present?

The fundamental challenge this industry is facing is the high cost of customer acquisition. Many platforms spend too much money trying to acquire single borrowers. We use technology to increase efficiency and extend coverage to a much larger audience.

Others in our industry cannot achieve that efficiency because their operations are based on a manual collection of credit information and underwriting process.They can’t have scale because they need such a large number of manpower.

So that has resulted in most peer-to-peer companies going for large amounts of loans. They also need to charge borrowers higher fees.

To make their charges look small, they have to increase the borrowing amount. So they gradually move into lending for small and medium-sized enterprises because there is no way for them cut down their acquisition costs.

Based on statistics from the People’s Bank of China,the average loan for 99 per cent of microcredit companies on the mainland is 100,000 yuan. But they’re supposed to be micro-credit, right?