P2P lending platform PPDai posts solids results in Q2, turns to institutional funding

By Nicole Jao
2 min read
Image credit: BigStock/Stanislau_V

New York-listed PPDai, an online financing marketplace headquartered in Shanghai, posted net profits of RMB 660.5 million (around $96.2 million) in the second quarter, despite a “dynamic and volatile” market environment, the company said during an earnings call on Tuesday.

According to the company’s latest financial results, funding on the platform by institutional investors increased significantly in Q2, a measure taken by many of the company’s peers in response to the tightened regulatory environment in China.

Why it matters: Increased regulatory supervision has led some of the largest players to pivot away from peer-to-peer (P2P) loans and focus more on diversifying their product portfolios.

  • The number of P2P investors and platforms has been on a sharp decline since regulators started cracking down on risky financial practices in 2017, which is expected to lead to more consolidation in the industry. Many smaller platforms collapsed as a result.

“During the second quarter, we continued our focus on driving healthy results and maintaining robust and above-standard regulatory compliance. Our solid growth momentum amid a dynamic and volatile market environment reflects the constant demand for technology-driven consumer finance services in China. We are particularly pleased with the following metrics for the quarter.”

Zhang Jun, chairman and co-CEO of PPDai, said during the earnings call on Tuesday

Details: The company’s net profit reached RMB 660.5 million (around $96.2 million), an 8.7% increase year on year. PPDai attributed the growth to the increase in loan volumes and an expanding user base.

  • Loan volume grew by more than a quarter from the same period in 2018, reaching RMB 21.6 billion. Despite posting positive results, PPDai’s shares were trading down 2% intraday Tuesday.
  • Around 40% of the company’s operating revenue came from loans funded by institutional partners, a significant increase from 24% in the first quarter.
  • PPDai also ramped up its investment in big data and artificial intelligence to enhance business processes. In Q2, the company spent RMB 101.6 million on research, a 30% increase from a year ago.
  • PPDai also announced that the company’s current chief product officer Wang Yuxiang will take over from Si Jinqi, who has resigned, as chief technology officer.

Context: PPDai, an early comer to China’s P2P lending space, was launched in 2007. The company claimed to have over 99 million registered users on its platform as of June 30.

  • Earlier this year, analysts said regulations may lead to more than 70% of P2P platforms dropping out of the market.
  • Regulators have introduced a registration program for P2P lenders, requiring platforms to register on a monitoring system to provide reports about their operations, including online deposits. The program is expected to be rolled out nationwide by 2020.
  • Regulators have been enforcing the “triple decline” policy: reductions in outstanding loan balances, the scale of operations, and the number of investors and borrowers.
  • Ping An-backed Lufax, which operates one of the largest P2P lending platforms in China, announced (in Chinese) last week plans to cut its P2P lending business to less than 20% of its current operation.