Opinion | Xiaomi’s risky play with P2P lenders: another reason to be bearish

Xiaomi has its own interest in online lending while simultaneously allowing shady lenders to advertise on its platform. What could go wrong?

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To most of us, Xiaomi still stands for China-made, affordable yet pleasant-looking smartphones.

But in the lead up to the company’s IPO earlier this month – which continues to be a rocky one – its founder LEI Jun went all in to deliver his bigger vision: Xiaomi isn’t a gadget maker, it’s an internet company. One that gathers data from a network of smartphones and other internet-enabled devices, and sells additional “online services” – things like utility apps and content, created by partners. In other words, a platform business built around the Xiaomi brand and gadgets ecosystem.

Many observers don’t really buy this. Tech news site Pandaily dedicated a podcast to the question: Xiaomi: bull or bear? asking listeners to weigh in. People tended to come out on the bearish side. A Bloomberg column points out that even Xiaomi’s core business, selling smartphones, is showing cracks. The phone maker recently lost its top position in India to competitors Samsung and OnePlus. (Most of the Bloomberg columns on Xiaomi paint the company in a somewhat gloomy picture.)

What I observed last week wasn’t confidence-building either.

At home in China, a number of people complained on social media that they had fallen for bad P2P loans recommended to them by Xiaomi. Chinese online tech media TMTPost has a summary of users’ grievances (link in Chinese).

Well, large parts of China’s P2P sector were crumbling after a government crackdown. For some, it came too late – they had trusted sites with their savings in hopes of getting the promised returns.

Xiaomi had an explanation: It doesn’t have anything to do with those lenders. It only let them use its platform for advertising purposes.

But to those who fell for the P2P platforms they discovered through Xiaomi, that’s not the case. They claimed that the reason they bought into those platforms is that Xiaomi endorsed them.

So did Xiaomi “endorse” those platforms or not?

Xiaomi had used a gamification trick here, leveraging users’ trust by recommending P2P platforms to members of its benefits network. The P2P platforms showed up to users as “daily tasks”, where members who complete one or more tasks – like investing in P2P – receive free gifts.

It’s the platform dilemma. Your brand takes a hit when your platform is used by unreliable, or even fraudulent sellers.

To distance itself from bad P2P actors with the “we’re just a platform!” argument will be extra hard for Xiaomi, because it has its own ambitions in this sector, dating back to 2014, when it took up a stake in Chinese online lender Jimu Box.

Since then it has invested in or partnered with similar financing companies not just in China, but also in India and Southeast Asia. Xiaomi has dozens of businesses in its portfolio, (Crunchbase counts 41) in sectors as diverse as hardware and financial services.

Jimu Box for now seems to be unaffected by the recent P2P culling in China. It’s still among one of the top online lenders there according to a ranking by a Chinese P2P trade news publication. But from a user’s point of view, it’s difficult to get those differences. If Xiaomi is known for recommending bad loans, why should I trust the P2P lenders that are part of its portfolio?

If Xiaomi continues making serious investments in online lending while simultaneously allowing shady lenders to advertise to its VIP members, this spells trouble further down the road.