Lexin: Not Just Another E-commerce Player
By Kent Lin
With recent Chinese economic and domestic consumption growth, Chinese online financial lenders such as ant financial, JD Finance, Qudian, and Lexin are experiencing rapid growth.
Lexin Fintech Holdings, a Nasdaq-listed fintech company, released first quarter 2018 unaudited financial data on 5/21. Their operational revenue in the first quarter came out to 1.6 billion RMB(10.25 billion USD), a 31% year-on-year growth, with net profits of 146 million RMB, a 160% year-on-year growth. Additionally, Lexin’s user base has grown dramatically to 264 million, a 94.8% year-on-year growth.
In the past, due to risk management, traditional financial institutions have been unable to meet the needs of younger customers between the ages of 19 and 25. Generally, this demographic hasn’t had a stable income or disposable cash, but has still had a strong desire to consume. At the same time, financial institutions have lacked the analytical skills to clarify a default rate, leading this important group to be woefully underserved.
Lexin, a Shenzhen-based company, has focused on serving the credit needs of these young adults since 2013, launching three different products designed to fit this demographic: Fenqile (分期乐), Juzi Licai (桔子理财), and Dingsheng (鼎盛资产).
Fenqile, a primary product of Lexin, is an online e-commerce, Amazon-like platform, mainly targeting university students at first. Based on customer demand and preference, Fenqile offers many products to suit their needs, such as perfume, athletic footwear and smartphones.
In China, personal data collection is common, and a real-name registration system is applied almost everywhere, including website construction, app registration, and cell number application. Additionally, when taking a train or high-speed railway, travelers need to submit their ID number in order to purchase tickets. When passing station entrances, they swipe their ID cards directly, and at the same time, images of their faces are captured by nearby cameras. As a result, ID info can be mapped to facial images that are collected.
On the Lexin Fenqile platform, real-name registration is also necessary. New users are asked to submit their real name, ID and phone number for registration. With more users registering and making purchases, Lexin has begun utilizing user behavioral data insights and other technological capabilities by default. For example, when an account places repetitive or abnormal orders, the system recognizes the behavior, and in this case suspends the account temporarily. Customer service then contacts the user at a later time to clarify the situation. Several traditional financial institutions behind e-commerce platforms also provide capital and personal data, such as crime and default history, to Lexin.
Lexin uses machine-learning to optimize their sophisticated model and algorithms from the mass data they collect. For better prediction and modeling, it has performed over 1000 decision rulings and 5000 potential variables by accumulating data from over 6.5 million customers and 22 million credit applications. The comparative advantages of Lexin over traditional financial institutions include its adoption of outstanding technology and its data analysis skills, which are also the reasons why banks and insurance companies are willing to cooperate with Lexin.
In Chinese internet circles, it’s no secret that the three conglomerates Baidu, Tencent, and Alibaba (BAT) dominate, having a large hand in controlling the fate of almost every new startup. Once startups run their projects well, they either get funded by these three big companies, and in some cases are acquired by them, or these conglomerates imitate (copy) the product and use their superior resources and traffic to crash the startup.
Lexin is no exception. Firstly, one investor of Lexin is Richard Liu, CEO of JD, whose rise can be attributed to Tencent’s support. And Jay Xiao, CEO of Lexin, used to work for Tencent as Product Director. Secondly, before China’s grip on regulations of online consumer lending, JD, a well-known e-commerce platform competing with Alibaba, had tried to attract young university students as users by using Fenqile. And thirdly, when Lexin aims to IPO, they reshape their equity structure to VIE, a common ownership structure Chinese companies use when they go overseas IPO. In this case, JD and its affiliates hold an 11.9% share of Lexin.
On the other hand, Qudian, the major competitor of Lexin in online consumer lending and also a Nasdaq-listed company, is backed by Alibaba. Depending on public information, Ali’s affiliate investment company holds a 12.5% share of Qudian. On the business and tech side, Alipay provides tremendous traffic from its entry to Qudian, whereas Alicloud supports it with cloud computing. So it is that choosing alliances and taking sides are an important part to the art of business in China.
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