There’s been quite some time since the last time a business was as easily profitable as cash loans.
The industry has grown rapidly in the past year, following a 2016 crackdown on P2P lenders in China. The total market capitalization is said to range from $90 billion to $151 billion.
Many leading cash loan platforms have made 1 billion yuan in profit at the half-year mark. Like one Chinese internet finance giant has seen its H1 profit reach a whopping 2.5 billion yuan this year, the CEO of a cash credit platform told Kr-Asia.
User traffic is essential for online lending platforms as it directly affects their lending efficiency.
The highly profitable cash loan provider, Qudian, attributes a significant share of its business to traffic directed from Ant Financial’s Alipay. As its prospectus shows, “We engage the majority of our active borrowers through the Alipay consumer interface.”
However, unlike Qudian, most lending platforms are not blessed with ready-made traffic sources. As a result, attracting visitors to their platforms and connecting effectively with prospective customers become the crucial part of their operation. This is where cash loan “supermarkets” come in to play.”
Put simply, cash loan “supermarkets” are an aggregator of loan products. In micro-loan “supermarkets”, users can compare each product on the different platforms and choose the most cost-effective one.
Take Rong360 for example. The company generates revenue mainly by collecting fees for recommendation, advertising and big data-based risk management services from lending platforms. Among them, referring customers to financial products contributes to as much as 80% of its profit.
How lucrative exactly is the business of connecting financial products with potential clients?
According to an analyst at ifeng Finance, under the cost per action (CPA) model, a lending platform pays between 10 and 15 yuan for each customer acquired from loan “supermarkets”.
Suppose the loan approval rate of a platform is 10%. The customer acquisition cost for the platform would be 100 to 150 yuan per borrower. Meanwhile, under the cost per sale (CPS) model, cash loan “supermarkets” generally charge around 3% of the loan amount for recommendation services. Some even collect 10%.
According to Rong360’s prospectus, the total recommendation fees it collected more than doubled from 117 million yuan in 2015 to 239 million yuan in 2016. This year, the figure reached 314 million yuan in the first half alone. If the trend continues, Rong360 may reap as much as it did last year in recommendation service fees.
Despite being so profitable, cash loan “supermarkets” are not a high barrier-to-entry business. Despite difficulties in acquiring customers and risk management, building an app to start a cash-loan business won’t take too much time or money. In fact, the apps for cash loan “supermarkets” all have quite simple design. “I only hired an app developer to launch my own cash loan ‘supermarket’,” the operator of a cash loan “supermarket” told Yibencaijing.
Official WeChat accounts are one way to acquire users. Ke Xin, the owner of a WeChat official account, told Yibencaijing that one can get thousands of new followers a day by writing articles introducing the latest lending platforms on WeChat. Often with sensational titles, such articles can amass up to 40,000 views and bring lending platforms over 5,000 new registered users each.
Internet giants such as the provider of the office software, WPS, rolled out a loan “supermarket” called WPS Financial Service this year. Xunlei, a download manager, now operates Xunlei Yidai, literally meaning Xunlei Easy Loan.
Even lending platforms themselves are targeting the business. These platforms offer to direct their surplus traffic to other platforms. For example, Mashangxiaofei, the licensed lending platform is directing applicants whom it doesn’t have the time or energy to review to other platforms through its own loan market – “Mashangjie.”
The key to competitiveness for loan “supermarkets” lies in traffic. More traffic means that a “supermarket” can build a larger and more comprehensive database, which it can use to optimize its recommendation services and consequently improve conversion rates.
If entrepreneurs in Southeast Asia are to draw anything from the Chinese market, loan “supermarkets” may be a good place to look for new business models. They offer a perfect monetization alternative for companies already attracting huge amounts of traffic.