An Expert’s Opinion on China’s Interest in US Fintech

In a recent trip to China, LendIt Co-Founder Jason Jones sat down with CBN for an interview which centered around the recent Lending Club news. The video is available and you can also read the transcript. Following the news of the departure of Lending Club CEO Renaud Laplanche, we have seen an increased interest in US marketplace lenders from China. Here are Jason’s opinions on recent developments.

Q: What do you think about the fact that Shanda Group has become the biggest shareholder of Lending Club?

A: Shanda’s investment in Lending Club reminds me of RenRen’s previous investment into SoFi.  Both businesses are cash rich Internet companies that have taken opportunistic large stakes in leading US fintech companies.  Much like RenRen, I wouldn’t be surprised to see Shanda build a portfolio of fintech companies in China and abroad.

As for Shanda’s investment in Lending Club, they have invested before the DOJ has completed its investigation so they are making a bet that LC will turn out okay.  They are buying fear, which is often a good time to invest – buy fear, sell greed.

Q: There are more and more Chinese investors turning their sights on the US market, trying to be a bottom fisher. For example, the news that CreditEase is going to invest in Avant and Prosper notes. What do you think? Is this good for US marketplace lending industry?

A: I agree that more Chinese investors are turning their sights to the US.

The development of the Internet has introduced phases of disruption from display advertising, to ecommerce, to online travel, to search, and to social media. Along the way it has forced traditional industries to adapt or die including newspapers, radio, magazines, air travel, and retail.  This disruptive trend has finally reached financial services in areas like lending, payments, wealth management, insurance, and securities.  It is a massive trend that is impacting the financial services industry all over the world.  China has a huge emerging middle class, little historical retail financial services infrastructure, and an increased amount of Internet penetration, which sets it up to be the largest market for digital financial services.  Four of the five largest fintech companies are Chinese (read more here: China is the Biggest Market in Fintech – the World Just Doesn’t Know it Yet).  In the fintech sector, much of the innovation is happening in China.  It just makes sense to see the world leaders in fintech to expand beyond their borders to the US.

I disagree that they are trying to be bottom fishers.

Don’t listen to the media, which suggests that fintech is in trouble.  Sure the industry has experienced some turbulence over the past year but fintech is alive and well and it is not going away.  (If you don’t believe me, come to the Lang Di Fintech Conference or LendIt China Executive China Tour – you can meet 50+ industry leaders from the most successful international fintech companies in the business.)

Lending Club had a company specific issue that crushed the stock, so it is true that Shanda is making a contrarian value bet.  However, Chinese investors that have invested in other international fintech companies have not been bottom feeding.  They have been making early and mid-stage investments in high growth companies at healthy valuations.

I disagree that CreditEase’s investments in Prosper and Avant are bottom fishing.

First, CreditEase’s investments in Prosper and Avant were to buy loans not equity.  The credit performance of these loans across the industry has been solid and consistent.  The marketplace lending industry in the US uses a structure called a “bankruptcy remote vehicle,” which means that if a platform ever did get in trouble and go bankrupt, the loans would be isolated and would continue to be serviced by a back up servicer through a trust company – so effectively loan buyers are shielded from company risk.

CreditEase’s loan purchases of Avant and Prosper are for high quality loans.  Prosper and Avant have both consolidated their staff after going through a period of hyper growth and they are both in solid financial standing.

Second, just this month the CreditEase’s Fintech fund (their recently formed VC fund) has invested in:

Neither of these investments would be considered “bottom fishing” – they are both growth stage investments.

I think it is good for US marketplace lending (and fintech).

China is the world’s largest fintech market.  US has many innovative fintech companies that have great technical and financial talent.  China and the US are the two most important economies in the world.  We will collectively do better by working together.  I think it is great to have Chinese investors in US fintech companies and I think it is great to have US investors in Chinese fintech companies.

Q: Following issues at Lending Club, investors have been staying away from online loans. The loan volume of marketplace lending platform has since dropped. Are you still optimistic about marketplace lending industry?

A: I have talked with many fund managers.  The pause in online lending investment is temporary.  The fundamentals of the credit have not been impacted so that investment looks as good as ever.  In fact, the credit looks even more compelling now since LC and P have raised interest rates and are offering investor incentives.

Here is a former portfolio manager from BlackRock, which is the world’s largest fixed income company. He recently discussed why he is allocating more to online lending right now: Podcast 65: Brian Weinstein of Blue Elephant

The inaugural Lang Di Fintech Conference being held on July 17-18 in Shanghai will bring together industry leaders from the global fintech community to discuss best practices and learn about the latest trends in Internet finance.

The conference will highlight the companies and technologies driving change in financial services around the world, showcase innovations in areas including lending, payments, blockchain, insurance, and wealth management, as well as provide the opportunity to meet key decision makers.

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