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Difference Between Chinese and U.S. Online Marketplace Lending - Assured Asset Management
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Difference Between Chinese and U.S. Online Marketplace Lending

The state of online marketplace lending in China today is very different from in other areas of the world. In the year 2007 a number of marketplace platforms really started to boost the use of this type of lending in China especially. Retail investors and other small business investors were utilizing marketplace lending as a means to lend money as well as borrow money without having to go through traditional financial institutions.

With this large number of marketplace platforms which were available across China a huge number of borrowers and investors were making it very simple to start generating new investments in a cheaper fashion than was available at any other bank.

Some of the biggest platforms included the Lufax, Yirendai, Dianrong , ppdai, weidai and pp money just to name a few. It’s estimated that the online marketplace lending industry in China was responsible for around $16 billion in revenue at its peak. This was however before her new legislation was introduced with concerns about the various lenders across China.

There are now a series of major players within China’s online marketplace network that are now disbursing loans of hundreds of billions of Yuan each year. It’s estimated that Yirendai, one of the largest lenders will be responsible for disbursing up to 112.8 billion HK dollars (14.4 billion USD) in loans by 2020.

In the U.S., Prosper represents one of the highest market shares in marketplace lending available currently. When prosper first got started in the year 2006 it managed to make over $170 million in loans by the year 2009. Nonprofit entities named Kiva are also joining in this market with over $205 million in nonprofit loans which was completed by 2011.

Online marketplace lending is said to have grown quite rapidly in its lending platforms across the U.S. but it is just a small shade in comparison to the growth expected throughout China. Part of the reason why these U.S. companies have scaled so slowly is a result of population as well as legislation requirements imposed on U.S. lenders.

The projections for U.S. lenders do not remain quite as extensive as lenders in China. Even Upstart, one of the largest platforms in the U.S. has only just surpassed $700 million USD in loans.

Legislation differences:

In the U.S. there are reasonable legislative requirements on any type of lender even private marketplace lending services. As this part of the industry was relatively new in year 2007 there was none of this legislation in place for China’s authorities or any type of authority on these new lenders. As a result it was estimated that there were over 2300 online lenders who were basically performing indecent business practices that resulted in borderline fraud for their customers.

Since the legislation was introduced China’s authorities imposed a selection of new rules that prevented defaults and fraud for these 2300+ companies. As a result any new peer lender that starts up in China or operates within a Chinese authority cannot operate a business which does not comply with these various requirements.

As soon as these requirements were introduced there was a huge downfall in the overall profitability and scale of the marketplace platforms within the country. In 2016 alone a number of these companies also continued to struggle with outstanding loans totaling a sum of over 816.2 billion RMB. It seemed as though the major players within China’s network are the companies that have been able to stretch even through this extensive cooldown and continue to get their loans repaid. The industry continues to grow steadily but a series of systematic rules was something that was sorely needed in the Chinese network.

As we can see the market for online marketplace loans has skyrocketed in China especially. With these types of rapid changes and such a healthy market overseas it could be just a matter of time before the U.S. market begins to climb higher or before foreign investors take their lending strategies to China to compete with some of the largest companies.

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