Xiong Jianwei, a 27-year-old network engineer in Nanjing, Jiangsu province, has put his savings of more than 60,000 yuan ($9,690) into a peer-to-peer lending platform since 2013. His investment may not sound like very much, but Xiong receives a return of 7 percent to 10 percent, depending on how long he leaves his money with Tongbanjie, an online platform that hosts lenders with unrelated individuals, or "peers", without going through a bank.
"Tongbanjie has been my only financing platform for three years," said Xiong. He is happy with the extra income to subsidize his living costs in one of the most expensive cities in China.
"At first I was not sure if Tongbanjie was a reliable platform, but I came to trust it because it puts security first and offers satisfying services."
Such remarks must be music to the ears of the executives of Tongbanjie (literally, "copper coin street"), who have been bent on winning customers like Xiong.
Chief Executive Officer He Jun, 35, said that his company prides itself on its differentiation strategy, which focuses on being a supermarket of P2P products for individual investors.
"This year, rather than merely seeking more transactions, we will hone our differentiation strategy, strengthen risk controls and improve users' experience," he said.
Established in 2012, the Hangzhou-based company recorded transactions of 270 million yuan in 2013, rising to 10 billion yuan last year, when it turned profitable. It charges fees on each transaction.
As of the end of March, there were 1,728 Chinese P2P companies with outstanding loans of 151.8 billion yuan, according to data from Wangdaizhijia, a portal that provides Internet lending information.
Rather than competing with them, Tongbanjie serves as their platform. Although some Internet giants have entered the domestic online finance market, they have only generated traffic for P2P companies. For instance, Baidu Inc offered a series of financial products in conjunction with fund management companies that "ride" on the giant's traffic.
He said that as an online platform, Tongbanjie does generate traffic for other P2P companies, but it has also studied the quality of these companies and the products they offer to investors.
"We require our P2P partners to lend to individuals, and micro-sized and small firms, which make a large contribution to China's economy but often lack access to financial services," said He, adding that the company has selected more than 30 P2P companies to be on its platform.
"The core competence of an online financial supermarket is to balance traffic, asset quality and investor demand, and only one or two players will survive," said He.
Tongbanjie is setting up a transaction structure for a loan product that will offer varied terms for those who invest. Some investors can choose to have priority when it comes to repayments of debt principal, and the interest rate will be comparatively low for these transactions. Other investors can choose to receive higher interest rates, but they will get their principal later and may even lose some of it.
For each transaction, Tongbanjie holds risk reserves in escrow. "We do not touch that money, which we deposit with commercial banks", He said.
China CITIC Bank Corp Ltd is responsible for the fund settlement supervision, which means that the bank oversees the operations involving Tongbanjie's own funds as well as those financed on its platform for P2P lending products.
"I look positively on Tongbanjie because He Jun is a genuine entrepreneur who has more than 10 years' experience in Internet finance. Also, the company is mobile-based and has good positioning when it comes to products and risk," said Liu Erhai, former managing director of Legend Capital, the private equity and venture capital arm of Legend Holdings Ltd.
In September, Tongbanjie received series B financing totaling $50 million from Legend Capital.
Liu said China's Internet finance sector can make a big contribution to the nation's economic development because it not only uses new technology to transform a traditional sector, but also promotes China's move to market-driven interest rates.
Liu said that policy uncertainty is now the largest source of risk for the sector, followed by such factors as the economic situation.
People's Bank of China Governor Zhou Xiaochuan said in March that the central bank would soon issue detailed policies for the Internet finance sector, which comprises online payments and crowdfunding, as well as using the Internet to sell financial products.
Dou Erxiang, a professor at Peking University, said that the Internet finance sector is a supplement to China's existing financial system. "But loss guarantees are the biggest risk for Internet finance firms," said Dou.
Lufax.com, the domestic P2P lending platform set up by Ping An Insurance (Group) Co of China Ltd, which had promised to guarantee investors against losses, had overdue bad loans of about 250 million yuan, according to China Business News.
