China Web Lender Aims for US IPO With Crafty Borrower Reviews


SmartFinance, a Chinese internet loans business that judges borrowers on factors including how often they charge their phones, has consulted banks about a possible U.S. listing that could happen as soon as this year.

The rapidly expanding company, which anticipates it will reach a $1 billion valuation by the end of 2017, has hired former Cheetah Mobile Chief Financial Officer Andy Yeung to help better manage investor relations and smooth the path to an eventual listing.

“We’re not a bubble; we’re a profitable company,” SmartFinance founder and Chief Executive Officer Jiao Ke said in an interview. “If you look at our metrics they are actually better than many of these billion-dollar-plus companies. So I think hitting a $1 billion valuation by the end of the year is very reasonable.”

Jiao, who is known to colleagues by his English name UBee, told Bloomberg the company’s next step is an initial public offering, probably in the U.S. By the end of 2017, he expects to have more than 2,000 staff and facilitate as many as 4 million loans a month.

SmartFinance is part of a growing number of startups using artificial intelligence to assess how safe a borrower might be. Many mainland Chinese lack credit histories, making it riskier to lend them money, while also being less concerned about sharing personal data than in other countries. By using non-traditional gauges these new players aim to crack open the nascent market while still making a profit. One lender, China Rapid Finance Ltd., listed American Depositary Receipts this month.

SmartFinance is more commonly known as Yongqianbao, which translates as “need money pal,” and taps into as many as 1,200 data points collected by its smartphone app to assign credit ratings for would-be customers. Making calls that go unanswered or failing to frequently charge your phone are all potential signs of a problematic borrower.

SmartFinance acts as a gatekeeper with each applicant’s data run through one of more than 120 models, with a lending decision made within eight seconds. Approved customers are assigned to a lender that directly arranges the loan. A small fee is collected from each transaction and a percentage of every loan is levied to pay lenders for unpaid debts. About 70 percent of the funds come from traditional lenders, while 30 percent are from peer-to-peer lending platforms.

The average loan is 1,500 yuan ($218) and the maximum lending time is one month. The small amount and shorter time period helps to reduce default rates. Customers with the best scores can borrow as much as 5,000 yuan. About 23 percent of applicants get approved and 1.5 million loans worth 2.3 billion yuan were handed out in March, up from 1 million in December. In total, about 8 million loans have been granted to 2 million users.

SmartFinance’s backers include Sinovation Ventures, Golden Brick Capital and Morningside Venture Capital, which was Xiaomi’s first institutional investor. It raised $68 million at a valuation of $350 million in March.

“Only 200 million people here have credit cards,” Morningside Venture Capital partner Yu Cheng said, adding that WeChat Wallet and Alipay users were often included in that figure. “So the market potential is huge.”

IDC China research director Kitty Fok said the future of the industry remained unclear with looming government regulations that could potentially clamp down on lenders and a wave of similar startups claiming to use AI the same way. Giants like Baidu Inc. and Alibaba-linked Ant Financial are also using AI to assign credit scores.

“This is a highly regulated market and the technology required is quite advanced so eventually a lot of the small guys will die out or be acquired,” she said. “You can expect to see consolidation to happen and then the market will be dominated by a few big guys like Alibaba or Tencent.”


— With assistance by David Ramli


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