As the peer-to-peer lending industry takes off globally, China Rapid Finance is positioning itself for rapid growth. The Shanghai-based peer-to-peer (P2P) lender already has 1 million customers and handled 8.8 million loans through last October. Now, it plans to raise at least $100 million in a U.S.-based initial public offering as soon as 2017, according to Bloomberg, citing people familiar with the matter.
China Rapid Finance's Growth
An IPO would add to the $91 million China Rapid Finance has already raised. Investors see major potential in peer to peer lending, given the size of the China market. China's estimated population of 1.4 billion is more than four times larger than the U.S. In China, peer to peer lenders are attracting a growing middle class that's seeking better financial returns than state banks, Bloomberg says in its February 23 story.
Consulting firm iResearch says the industry is poised to reach nearly $540 billion in transactions by 2019 as it becomes easier and sometimes cheaper for consumers to obtain loans. At the same time, investors will be attracted by high returns.
China Rapid Finance is backed by Broadline Capital, which led the company’s $21 million Series B financing, along with backers China United SME Guarantee Corporation, DLB Capital, Northwater Capital and QED Investors, according to Crunchbase. (See also: The 7 Best Peer-To-Peer Lending Websites.)
U.S. Peer to Peer Lenders
The Promise of P2P
Peer-to-peer lending, which enables individuals to borrow and lend money without a traditional lender such as a bank, has expanded rapidly in the U.S. and other global markets. And it's booming in China where the peer to peer lending market has become the world's largest, according to a report from by the Association of Chartered Certified Accountants, the global body for professional accountants.
The use of technology has also aided the market’s exponential growth. “By applying innovations in alternative finance, peer-to-peer lending in China is creating new channels of credit information and increasing access to finance,” the report's authors, Luke Deer, Jackson Mi and Yu Yuxin wrote. (See also: Peer-to-Peer (P2P) Economy.)
And the Perils
To thrive, China Rapid Finance will have to avoid the missteps of some of its competitors. Peer to peer lenders have been hobbled by local corruption, problematic technology platforms and liquidation, according to the 2016 Blue Book of Internet Finance. Consumers have even been victims of Ponzi schemes, in which lender Ezubao allegedly defrauded nearly 900,000 people out of $7.6 billion in 2015.
Following the collapse of Ezubao, the China Banking Regulatory Commission imposed strict limits on lending among peer-to-peer platforms. In August 2016, it allowed individuals to borrow a maximum of $150,000 (1 million yuan), including a maximum of 200,000 yuan from one site.
That turmoil and rising government regulation has affected Lufax, a Chinese competitor of China Rapid Finance. Lufax CEO, Gregory Gibb has postponed the startup's planned IPO.