Battle of Microlenders: Competition for Campus Market Ignites as JD Invests in Fenqile

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(Chinese Version)

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$100 million in B series financing,a daily trade volume averaging in the tens of millions, and a nationwide coverage of 3,000 colleges and universities. These are the results that student microlending platform Fenqile.com CEO Xiao Wenjie and his team have achieved in a little over a year. On March 24, after a week of rumors, Fenqile.com formally announced that it had been granted strategic investment from e-commerce giant JD.com, without addressing public concerns about the amount of the investment, valuation, or the investor’s proportion of total shares.

[Wang Zhen/ TMT Post Intern Editor] Xiao Wenjie, CEO of the popular university student microlending platform Fenqile.com, has led his team to hand over impressive results in just a little more than a year: $100 million in Series B financing, an average daily trade volume numbering in the tens of millions, and a nationwide coverage of 3,000 colleges and universities.

On March 24, after a week of rumors, Fenqile.com formally announced that it had been granted strategic investment from e-commerce giant JD.com, without addressing public concerns about the amount of the investment, valuation, or the investor’s proportion of total shares. (JD Debit Notes have at the same time rapidly proliferated on university campuses. See TMTpost’s “JD Debit Note Eyes College Markets Again”.)

College students have always been regarded as a high-growth market, with a variety of consumer demands, from electronic goods such as cell phones, to purchases related to travel or maintaining romantic relationships. But since 2009, the government has prohibited banks from issuing credit cards to students. In 2014, following the rise in online banking, an influx of start-ups catering to student shopping installment swept the country.  (See TMTpost’s “Banks Abandoned College Installment. Now Microloan Start-Ups Fight for a Piece of the Pie”.)

An Unsurprising Collaboration

Fenqile.com is an online installment purchase shopping centre and financial services provider that targets university students, providing these young consumers with installment loans and repayment services. Last December, Fenqile received US$100 million in lead investment from DST, a Russian venture capital firm that had also invested in JD.

When Fenqile was first founded, it chose to source its supplies from JD, and JD also provided support in logistics and product distribution.

In choosing to make JD its distributor, Fenqile’s supply, logistics, and user experience are all guaranteed.

Because of this, it is hardly surprising that Fenqile has allowed JD to purchase shares.

With this new level of investment, the relationship between Fenqile and JD is set to become even closer. Xiao Wenjie told TMTpost that the companies would cooperate in supply chains, financing, and data sharing.

With supply chains, Fenqile’s amount of purchases is very large, and it should have quite a large say when it comes to the pricing, type, and quantity of goods.

With financing, JD has its own financial services group, providing Fenqile with claims support. When it comes to data, JD has its own operations on university campuses and can share its data on campus markets.

JD has already made campus financing one of its top priorities of this year, but with its new stake in Fenqile, one can’t help but begin to wonder: Will JD gradually make Fenqile into one of its own subsidiary platforms?  Xiao Wenjie does not rule out this possibility, but expressed hope that Fenqile will become a major independent platform in its own right.

Is a Price War Imminent?

The university student microcredit and installment payment model seems rather simple; it just takes online shopping platforms to add a virtual credit card function, with the funding side connected to P2P online loans.  The commodities side is similar to normal online commerce, but the key to its operation lies in its targeted push on university campuses.

There have been concerns about university microloan platforms, mostly due to the high interest fees they charge. Of course these platforms call them service fees, but with interest rates reaching as high as 20%, these platforms have been accused of committing a form of usury against university students.

TMTpost has learned that on Fenqile’s official website, the price of an iPhone 6 is 5,388 RMB. If payments are made in 12 monthly installments, the monthly payment is 449 RMB and the service fee is 0. If payments are made over the course of 24 months, the monthly payment is 257 RMB, and the service fee is 32 RMB. The total amount paid in the end is 6,168 RMB, with service fees reaching 780 RMB. But according to Xiao Wenjie, if the installment payments are made within a 12-month period, there is no service fee. If the payment schedule exceeds 12 months, then the service fee is priced at just 30% of previous rates, translating into interest rates between 12%-14%.

On the one hand, these reduced service fees may be thanks to this new round of financing giving Fenqile a shot in the arm. On the other hand, it also may be thanks to Fenqile’s own funding platform Juzilicai. Xiao Wenjie states that as the exclusive proxy for all of Fenqile’s claims, Juzilicai can directly sell its claims and assets to individual users or to sell through other P2P platforms and financial institutions. By having its own financing platform, Fenqile avoids complete reliance on third parties and at the same time gains credit pricing rights, giving it the ability to lower interest rates itself.

Yet another big player in student micro-finance, Qufenqi, also received US$100 million in investment last year. TMTpost has learned that Qufenqi also advertises no service fees for repayment within 12 months and a 50% discount for repayment exceeding 12 months.

It seems that competition is growing ever more intense for student microlenders. The competition for homogenization is also growing increasingly fierce, and price wars are beginning. This means that the new war for investment capital is set to erupt—and for micro-lending platforms, the battle for capital has only just begun.

(The article is published and edited with authorization from the author @Wang Zhen, please note source and hyperlink when reproduce.)

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