Chinese peer-to-peer lender Lufax will use its newly raised $1.2 billion of additional funding not just to boost its lending capacity but also to connect more online investors with offline services, ahead of a planned initial public offering that could fetch more than $5 billion.
In an exclusive interview with FinanceAsia on Tuesday, Lufax chief executive officer Gregory Gibb said the Shanghai-based company has massive scope to tap into the aspirations and wealth of China's rising middle-class.
With Chinese investors increasingly scanning overseas and domestic markets bedevilled by low-yielding deposits, volatile shares, and risky trust or wealth management products, the market clearly needs more investment options. The big opportunity for Lufax, Gibb said, is to offer these in a highly bespoke way.
The strategy at Lufax, which is short for Shanghai Lujiazui International Financial Asset Exchange Co. Ltd. and is backed by Ping An Insurance Group, underscores its ambition to expand its client base by leveraging off its parent's one million-strong labour force and its wide range of institutional and individual investors.
Online-to-offline is a hot spot in China as technology companies try to monetise the online traffic from their various businesses, from taxi-hailing apps to group-buying websites, and more consumers grow accustomed to using their phones to transfer money.
The Chinese O2O market grew by 80% year on year to Rmb304.9 billion ($46.4 billion) in the first six months of 2015, according to China’s Ministry of Commerce. Bank of Communications forecasts that the O2O market will grow another 58% to Rmb660 billion in 2016 as Chinese consumers increasingly shop with their mobile devices and pick up their deliveries at home.
The competition amongst technology companies is also growing. Alibaba and its financial affiliate Ant Financial said in July that they will each put Rmb3 billion into a O2O joint venture called Koubei.com, which is focused on food delivery services and aims to facilitate more transactions using Ant Financial’s Alipay, a PayPal-like payment system.
Boosting its existing 2,000 domestic mutual funds on its various platforms, Gibb said Lufax is in talk with international fund management firms like Fidelity and BlackRock to offer overseas products to Chinese investors.
“Putting everything (i.e. the cross-border settlement, multi-currency conversion, and investor identication process) in place to do it on an online platform while preserving an easy customer experience is a big deal,” said Gibb, who expects the loan sales agent and online borrowers will drive its offline traffic.
For most ordinary investors in China investing overseas is not an easy task as Beijing has a tight control of the capital account, which covers cross-border money flows for financial transactions. The Chinese government is keen to avoid rapid money moving in and out of the country, as it wants to manage the value of the Chinese currency and ensure its exporters are competitive in foreign markets.
The planned listing of Lufax later this year is set to break the hiatus in Chinese technology listings after Alibaba’s $25 billion IPO in September 2014. A dual listing in domestic and international markets remains possible but the destination has not yet been finalised.
“Thanks to a strong support from our parent company Ping An, we think our ability to source investment products and assets from other financial institutions is a key differentiator for us among other fintech companies since it has helped us to build a solid open platform, extending our first P2P product four years ago,” Gibb said.
Ping An products represent up to 40% of Lufax's entire offering last year, down from 50% in 2014, suggesting that Lufax wants to grow its product line by adding other banks and insurance companies.
Ping An Group, the country's second-largest insurer by premiums, owns about 43% of Lufax following the second stake sale, down from 47.49% previously.
At the end of 2015, Lufax had more than 3.6 million active users and handled more than Rmb 1.6 trillion worth of transactions on its various platforms.
It is quoted in mainland Chinese reports saying that its full-year 2016 revenue is expected to jump to $3.1 billion, up from $706 million in 2015, while its annual loss will narrow to $68 million this year from last year’s $415 million. The company reportedly also said that it expects to make an annual profit of $1.55 billion in 2017.