China Rapid Finance, which claims to be the country’s largest online consumer lending marketplace, has closed a $35 million Series C round led by Broadline Capital. The round pegs the company’s pre-money valuation of $1 billion. China Rapid Finance is reportedly gearing up for an initial public offering in the U.S.
Founded in 2001, the company has already facilitated 2.5 million loans on its platform, which connects borrowers and lenders. Part of its plans for its latest funding round is marketing to the 50 million consumers it has already pre-screened.
After years of tight control by the government, China’s consumer loan and credit card market is opening up. Many Chinese consumers, however, don’t have credit scores because there isn’t a ubiquitous system like FICO in the U.S.
The People’s Bank of China and State Information Center of China offer credit ratings, but many people don’t have the lending histories necessary to build scores in those systems. Several companies, however, are stepping up with alternative ways of assessing a potential borrower’s ability to pay back loans.
China Rapid Finance says 500 million consumers are potentially suitable borrowers and it hopes to reach them with a mobile-based platform that automatically scores their creditworthiness based on data from financial institutions, social networks, and anti-fraud information collected from Chinese cities.
In addition to loans made over its platform, the company says it has helped Chinese banks issue over 100 million credit cards.
“In China, most creditworthy borrowers have traditionally lacked access to consumer credit because they have no history on file with the Central Credit Bureau operated by the People’s Bank of China,” said founder and chief executive officer Zane Wang in an email.
“By teaming up with leading data providers like Tencent, the nation’s largest online social network platform, China Rapid Finance applies its unique algorithm to pre-screen the creditworthiness of borrowers based on Big Data analysis. Multiple categories of data—online payment data, social network data, e-commerce purchase data, and other information such as application scores, response scores, anti-fraud scores—are all used to generate a profile for each individual.”
Loan sizes start at $80. As repeat borrowers build their credit histories, they can apply for larger loans, with typical consumer lending amounts ranging from $5,000 to $10,000.
China Rapid Finance’s competitors include Alibaba’s Ant Financial, which runs a credit-scoring system that analyzes user activity and feedback on the e-commerce giant’s marketplaces and a joint venture between JD.com and Los Angeles-based ZestFinance to provide micro loans to people without a credit history.
Wang said that China Rapid Finance’s edge over other online lending companies is its proprietary “Automated Credit Decisioning” and “Risk Based Pricing” technology, which allows it to quickly make decisions about how much to loan based on an individual’s credit risk.
The company “helps massive amounts of online borrowers not only access credit for the first time in their lives, but also help them move up the credit stairs. This is absolutely key for scalable and profitable growth in consumer finance,” said Wang.
By relying on information from their platforms, e-commerce companies are limited not only by the data they have access to, but also to the people who use their sites regularly, he added, which means their borrower base remains relatively small.
“There is a massive need for cash from prime and near-prime borrowers which banks and other online purchase service providers cannot serve effectively,” said Wang. “At China Rapid Finance, we view most of China’s leading online companies and shopping sites as potential strategic partners, not direct competitors.”