eResearch | Alibaba’s CEO, Jack Ma is leading the charge in the alternative lending industry with his own online bank, which has provided US$290 billion to 16 million small enterprises over four years in China.
Jack Ma’s online bank uses real-time payment data and a risk management system to analyze credit through over 3,000 variables. All that is needed to apply for a loan is a smart phone, and the loan takes only three minutes to be processed and adjudicated through an algorithm. The online bank only has a 1% default rate.
As Jack Ma will not be able to capture all of the market in China, there are numerous public companies with online banks, platforms and apps that are competing in the alternative lending industry, including:
- X Financial (NYSE: XYF) is a Chinese financial technology company that offers a proprietary online platform that matches loan & investment requests from China’s prime borrowers with mass affluent investors, and executes transactions to provide borrowers with prompt funding.
- Hexindai Inc. (NASDAQ: HX) is also competing in China as it works through its subsidiaries to operate an online consumer lending marketplace to connect borrowers and investors.
Peak Positioning Technologies Inc. (CSE: PKK) is a Canadian financial technology company that has exclusive Chinese commercial rights to the Cubeler commercial lending Fintech platform which uses proprietary technology to connect borrowers and lenders. Peak Positioning’s subsidiary, Asia Synergy Credit Solutions, provides commercial lending outsourcing solutions to Chinese banks and lending institutions to service loans to micro and small sized companies. Currently the platform hosts 2 banks and other 8 financial institutions on the platform.
Traditional loan companies such as banks take too long to originate new loans, especially for small tech businesses that have little to no revenue. Alternative lending companies are now taking advantage of this white space by offering niche lending platforms for small enterprises through automated loan processing and simple online interfaces.
According to Adriot Market Research, the peer-to-peer alternative lending market is expected to grow at a CAGR of 25.4% to US$820 billion by 2025.
As each company develops its own algorithms analyzing data through different variables, only time will tell which ones are analyzing credit the most accurately.
Other public Canadian and U.S. alternative lending companies to watch:
Mogo Finance Technology (TSX: MOGO; NASDAQ: MOGO) is a Canadian financial technology company that offers various solutions in lending and credit management including credit score monitoring, digital mortgages, identity fraud protection, and cryptocurrency accounts.
- In May 2019, it announced Q4 2019 and reported a revenue increase of 21% to C$16.1 million year over year, in which subscription and services revenue by grew by 100%.
- Mogo currently trades at C$3.68 with a market capitalization of C$86.6 million.
LendingClub (NYSE: LC) is a U.S. alternative lending company that connects borrowers and lenders to create unsecured personal loans between US$1,000 and US$40,000.
- It was the first peer-to-peer lending platform to register its offerings as securities on the SEC and in 2014, it raised US$1 billion to become the largest technology IPO within that year.
- In July 2019, Lendingclub reported in a disclosed SEC filing that its standard loan volume in Q2/2019 rose 5% to US$2.17 billion year-over-year.
- Lending Club is currently trading at US$14.38 with a market capitalization of US$1.2 billion.
On Deck Capital, Inc. (NYSEL ONDK) is an online alternative lending platform for small and medium enterprises in the U.S., Canada, and Australia. It uses proprietary software to analyze business operation data to analyze credit risk to decide if companies are able to sustainably pay back interest and principles of loans.
- In June 2016, JPMorgan Chase, the largest bank in the U.S. announced a partnership with On Deck Capital to offer the online lending software to the bank to use to supply small businesses with loans.
- On Deck Capital Inc. (NYSE: ONDK) currently trades at US$3.50 with a market capitalization of US$267 million.
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