News Article | June 23, 2015
China is still a country where people prefer to pay up-front – often with wads of cash. Taking out a loan to buy a car is still uncommon and some people avoid a mortgage and pay for a house in cases full of cash. But not everyone has so much cash at hand. One Shanghai-based startup is hoping to bring China’s blue-collar and service industry workers – people like construction workers, security guards, and store staff – around to the idea of taking out loans for some smaller purchases. Although the people who use the service are strapped for cash, this isn’t the kind of US subprime mortgage lending that precipitated the 2008 financial crisis or that’s causing the new bubble that’s emerging in America in subprime car loans. “I wouldn’t describe my customers as subprime – they just have no [credit] data,” says Paymax founder and CEO Hu Dan, who’s a Stanford alumnus. The startup’s users, mostly across rural areas of China, have not defaulted before – and usually this is their first loan. Paymax focuses on people buying mobile phones and tablets, and it recently expanded to cover buyers of the Apple Watch as well. It might add in laptops. That’s all it covers. Hu stresses that someone who receives a loan is “not a borrower – they’re a buyer of a mobile phone.” That allows the service to avoid people who are desperate for cash, as well as people in trouble with loan sharks. And that’s one of several ways that Hu’s startup stands out from other online loan offerings in the country. The biggest challenge for the startup is that it’s battling the issue of China’s inadequate credit rating system. Hu reckons that the People’s Bank of China (PBOC) only covers about 30 percent of the populace with its credit ratings – but the coverage is even more sparse when it comes to blue-collar and service workers, who are the demographic that Paymax is focusing on. So Paymax effectively built its own ratings system. Hu explains that it uses “non-traditional data” like a person’s mobile phone number and QQ account number in order to root out “credit card junkies” who are just looking for a new system to scam or who have applied for loans on the growing number of Chinese peer-to-peer loan sites. One other method of checking on potential loan recipients is much more unorthodox – the company monitors the keystrokes of potential customers while using the Paymax website. That allows the startup to weed out people, he explains, who immediately jump to the largest loan amount, or who copy-paste in their address, which might suggest someone who’s applying at multiple loan sites. While that sounds creepy, the startup team reckons that Chinese consumers (who are informed about how the site works) in search of this kind of small loan won’t mind such an intrusion. A typical loan for a Paymax customer is about US$300 for a specific mobile phone or tablet. The loan usually lasts about 12 months, but 24 months is also an option. Another unusual thing about this loans startup is that it mostly works offline, eschewing ecommerce. Offline gadget retailers are “lagging behind in technology,” Hu says. “They want to compete with online, so they need credit payment options.” To do this, Paymax teams up with small and medium-sized gadget retailers so that the staff will suggest Paymax as a payment option to shoppers in the store. This covers 3,000 individual stores in China at present. The sales person, once he or she has persuaded a buyer to pay in this way, uses the app to generate a QR code that the shopper scans. This starts the loan application process – and triggers a cash reward for the shop assistant in the form of a WeChat “red envelope” that contains a random amount of cash; it could be anywhere from US$1.60 to US$32 for a single sign-up. At this point, Hu explains to Tech in Asia, it takes about five to seven minutes for the startup’s cloud-based credit rating engine to whirr into life and crunch through all that unusual data it has just been fed. A staffer might even make a call to one or two of the applicant’s contacts in order to confirm a few details. Factoring in some extra checks, a decision is made within 15 minutes and the loan amount is instantly wired to the shopper’s bank card so it can be used to buy that gadget. The startup makes money from a service fee as well as the flat-rate interest on the loan. It’s three percent per month plus a one percent chunk as a fee. “There’s not enough data yet for variable rates,” Hu says, but it’s something they’re working on so as to offer lower rates to safer loan applicants – and higher ones to riskier bets. It has issued 30,000 loans so far. (Update: Added in the loan rates.) Paymax doesn’t cooperate with China’s top electronics retailers, such as Gome or Suning, partly because the startup doesn’t cover purchases of home appliances, and partly, Hu concedes, because those major companies will probably get into loans in the future. Another reason Paymax works mostly offline rather than doing ecommerce, Hu says, is because there’s no room for startups in China’s ecommerce industry, dominated as it is by sites like JD and Alibaba’s Taobao and Tmall. Plus, those tech titans might soon get into the loans space, which would be no surprise as Alibaba, Baidu, and Tencent are already getting into finance and online banking. “They have lots of data already,” Hu says – and he believes they’ll first target white-collar workers with loans and then a few years later open up to blue-collar workers as well. Until then, he sees China’s 200 million young blue-collar and service industry workers with no credit cards as a potential user base that will stay the same size despite China’s growing middle class. China is seeing an explosion of online loan and microloan startups, but they’re all very different to Paymax. P2P loan startups are now flooding the market, keen to give ordinary people a way to lend money to individuals and small businesses. Notable startups in the P2P space include Dianrong, Renrendai, and Xiaomi-backed Jimubox. Closer rivals to Paymax are self-contained estores like 99fenqi and Qufenqi (“fen qi” means “installment” in Chinese), which are mixing online commerce with loans. All those have secured significant VC funding – as has Paymax, which secured US$15 million series A led by Sequoia Capital last year, and which will soon announce series B from Sequoia along with some new investors. Hu is a former VP of Sequoia Capital China. After four years in the role, he left last July to pursue an idea he had back at Stanford years before – one that morphed into Paymax and parent company Omni Prime. That idea was inspired by a class taught by Richard Fairbank, the co-founder of Capital One bank. “It was all about subprime and prime loans – and I thought it was very brilliant,” says Hu. He also felt the time was right – in terms of both consumer demand and the infrastructure being in place for a big data startup. Aside from getting more stores to offer Paymax as an option, the team is looking at expanding into small cash loans. Based on a survey of current customers, the startup found that many were interested in microloans like US$200 for just a few weeks. “Like bridge loans to the monthly pay check,” Hu says. If they offer that service, it will only be to existing customers by creating a whitelist of good loan recipients.
News Article | August 10, 2015
Alibaba Group Holding Ltd. will spend 28.3 billion yuan ($4.6 billion) for a stake in Suning Commerce Group Ltd. as China’s biggest e-commerce operator adds a network of electronics stores in its biggest deal ever. Suning shares soared. Alibaba will buy a 19.99 percent stake in Suning, which in turn will spend as much as 14 billion yuan for shares in the e-commerce company, according to a statement distributed on Business Wire Monday. The companies will partner in logistics and online sales to target deliveries as fast as two hours. Alibaba Chairman Jack Ma is beefing up his retail presence after a 24 percent drop in the company’s market value this year, bolstering the appeal of e-commerce operations facing slowing growth in China. Adding Suning to a partnership with department store operator Intime Retail Group Co. helps Alibaba compete with JD.com Inc., which specializes in selling electronics and has surged in New York trading this year. “Suning has one of the largest physical networks for selling appliances and that would help Alibaba’s location-based services,” said John Choi, an analyst at Daiwa Securities Group Inc. in Hong Kong. “Alibaba is becoming much more involved in offline retail through investments.” Suning shares jumped by the daily 10 percent limit to close at 15.17 yuan in Shenzhen, China. Alibaba’s American depositary receipts gained 2.1 percent to close at $80.47 in New York on Monday. The stock has declined 23 percent this year. JD.com Inc., a rival Chinese online retailer, plunged 6.3 percent in U.S. trading to close at $30.06, the lowest since April 6. Suning has more than 1,600 outlets in about 290 cities in China selling appliances, books and baby products. Alibaba will become the second-largest investor in the Nanjing-based retailer, trailing only Chairman Zhang Jindong. Alibaba is paying 15.23 yuan a share for the stake, which is about 10 percent more than Suning’s closing price on July 31, its last day of trading before being halted. Shares are up 53 percent this year. “We’re going to be able to leverage on Suning’s physical infrastructure,” Alibaba Vice Chairman Joseph Tsai said during a conference call. The companies will link their customer databases so they can tailor services such as in-store mobile payments, Chief Executive Officer Daniel Zhang said. The acquisition is Alibaba’s biggest-ever, excluding a $7.1 billion share buyback in 2012 from Yahoo! Inc. Alibaba has quickened the pace of its deals this year as its share price plummets in New York trading. Since January, Alibaba has announced 22 deals at a total value of $9.1 billion, compared with 25 deals all of last year at a value of $5.9 billion. The Suning partnership will help Alibaba expand in an electronics and appliance retail market forecast to grow 23 percent to 1.1 trillion yuan by 2018, according to researcher Euromonitor. Suning will partner with Alibaba’s Cainiao logistics affiliate, enabling the companies to cover almost all of the 2,800 counties and districts in China. “Retail e-commerce also needs the ground teams to serve its customers, especially for the electronics appliances,” said Ray Zhao, an analyst at Guotai Junan Securities Co. “It’s difficult for e-commerce players to acquire more good logistics land.” Suning’s No. 1 rival, Gome Electrical Appliances Holding Ltd., has taken a different direction in its strategy. Two weeks ago, the Beijing-based company signed a deal to buy a company owned by jailed founder Huang Guangyu for HK$11.3 billion ($1.5 billion). That would help it increase the number of outlets by 50 percent to 1,714 in 436 cities, exceeding those owned by Suning. Alibaba is scheduled to report fiscal first-quarter earnings on Wednesday.
News Article | August 10, 2015
Alibaba may be using the Internet to let merchants reach Chinese consumers, but the e-commerce giant still retains an interest in brick and mortar retail. How much of an interest, you ask? Enough to invest RMB28.3 billion (that’s around $4.63 billion) in retail giant Suning, an offline rival to its business. The deal gives Alibaba a 19.9 percent stake in the retailer, which is one of China’s highest-profile electronics sellers with more than 1,600 retail stores across 289 cities in China. As part of the alliance, Suning is shelling out as much as RMB14 billion (approximately US$2.28 billion) to take a 1.1 percent stake in Alibaba. In addition, Suning is adding its might to Alibaba’s logistics affiliate, Cainiao. As a partner, Suning will pair its logistical reach — which it said covers 90 percent of China via eight national distribution centers, 57 regional distribution centers, 353 city forwarding centers and over 1,700 last-mile delivery stations — with Cainiao to help customers receive orders quicker. That’s just one area where the two retail giants will combine. Online-to-offline, a major trend to e-commerce in China right now, is another obvious focus. Neither side is being too specific, but Alibaba said that in the future consumers could enjoy “a physical experience” with products in a store, while ordering and paying for their purchase using their phone and Alibaba’s Alipay service. Likewise, other synergies will include physical after-sales support in store for purchases made online via Alibaba services. (Suning claims to have over 3,000 after-sales service locations, and an additional 5,000 via affiliates.) Alibaba has been very vocal about gunning down old-style, offline retailers, but this alliance shows a shift in its thinking. Rather than taking on physical rivals that are weak where Alibaba is strong, it is joining forces to maximum the strengths of both sides. Given the sheer scale that companies like Suning enjoy in China, teaming up and expanding Alibaba’s touchpoints with consumers could unlock new potential. That’s the theory that Alibaba founder Jack Ma is buying into, at least. “Over the past two decades, e-commerce has become an inextricable part of the lives of Chinese consumers, and this new alliance brings forth a new commerce model that fully integrates online and offline,” Ma said in a canned comment. “This collaboration signals a new trend in the Internet age: Strengthening China’s traditional industries by leveraging the power of Internet,” Ma’s counterpart, Suning Chairman Zhang Jindong added via a statement. “It will also help transform China’s manufacturing industry and broaden the global horizons of Chinese brands.”
News Article | August 10, 2015
Alibaba this afternoon announced it is paying RMB 28.3 billion (US$4.63 billion) to take a 19.99 percent stake in Suning, a major retailer of electronics products in China. Suning, which was founded in 1990, is a fixture of nearly every Chinese city. The company says it has 1,600 physical retail stores in 289 cities across the nation. Aside from its offline retail business, the company has had more success than any other retailer in China in a transition to ecommerce, creating an estore that not only covers the gadgets and appliances found in its stores, but also everything from food and baby products to jewelry and furniture. As a result of that shift to the web, Suning has one of China’s top 5 ecommerce stores – larger in scale than Amazon’s entire Chinese business. The Alibaba-Suning deal is about online as well as offline partnerships. Suning will open a storefront on Alibaba’s Tmall marketplace, while Suning will open up its vast logistics network to Alibaba’s Cainiao logistics platform. That will help Alibaba merchants on Taobao and Tmall to ship their items faster to buyers using the “57 regional distribution centers, 353 city forwarding centers, and over 1,700 last-mile delivery stations” that Suning has across China. “[C]ustomers can expect to receive their orders in as fast as two hours in the near future,” said Alibaba’s statement today. The financial terms are also a two-way street. While Alibaba throws US$4.63 billion at Suning, Suning in turn will invest up to RMB 14 billion (US$2.28 billion) in Alibaba shares. “Over the past two decades, ecommerce has become an inextricable part of the lives of Chinese consumers, and this new alliance brings forth a new commerce model that fully integrates online and offline,” said Alibaba founder and chairman Jack Ma. “This alliance will benefit consumers and merchants by cultivating an open and transparent integrated ecosystem that will be the backbone of the future economy.” “By maximizing Suning’s brick-and-mortar assets with Alibaba’s vibrant ecosystem, we are in the best position to provide the ultimate shopping experience for all our customers,” added Alibaba CEO Daniel Zhang. The deal seems to be a way for Alibaba to tame a growing ecommerce threat while also strengthening its hand against JD, its closest rival in China.
News Article | August 10, 2015
Alibaba Group Holding will invest $4.6 billion in leading Chinese electronics retailer Suning Commerce Group, its biggest step yet towards integrating online and store-based shopping. Alibaba is paying 28.3 billion yuan ($4.56 billion) for newly issued Suning shares and will ultimately hold a 19.99 percent stake. Suning will in turn invest 14 billion yuan to acquire 1.1 percent of Alibaba through the purchase of new shares, the two said in a joint statement. The deal comes when Chinese companies, as well as the country’s top policymakers, have espoused combining offline and online sectors as a lucrative new business model. Baidu, China’s dominant Internet search provider, has said it would invest $3.2 billion over the next three years in such services, while property conglomerate Dalian Wanda Group said last month its entertainment arm would lead a $1 billion investment in a travel website. Alibaba’s latest alliance would, in practical terms, allow its online customers to go into one of Suning’s 1,600 outlets in China to try out products before purchasing them on Alibaba’s website using their smartphones. Suning, which has long boasted a formidable logistics operation, would join forces with Alibaba’s distribution network to deliver goods in as little as two hours, the companies said. China’s leaders have been fleshing out a broad Internet sector strategy known as “Internet Plus” to combine online and offline industries and encourage more technology-driven, high-value economic output as the world’s second-largest economy wrestles with slowing growth. For Alibaba, the alliance could reinforce its position against its main e-commerce rival JD.com, which has traditionally enjoyed healthy sales of electronics and gadgets. Alibaba will open a new section dedicated to Suning on its popular TMall shopping website. Alibaba has been seeking to strengthen its electronics offerings in recent years, inking tie-ups with Gome Electrical Appliances and Haier Electronics Group to offer home appliances online. Speaking to reporters on Monday, Alibaba Chief Executive Daniel Zhang said he would consider striking more deals with brick-and-mortar stores beyond electronics, as long as those retail chains “can bring us additional customers.” But he maintained that Alibaba’s interest in Suning did not reflect any fundamental shift in Alibaba’s strategy toward becoming more of a physical retailer itself. “We are trying to build an integrated online-offline platform for both customers and merchants,” Zhang said. “We don’t change our strategy. We’re still a platform company.” Alibaba’s Tmall faced challenges holding onto its long-held dominance in Chinese e-commerce, said James Roy, associate principal from China Market Research Group in Shanghai. “From Alibaba’s point of view, acquiring or having such a strategic alliance with a fairly large competitor will help them to continue to enjoy that strong position.” JD.com played down its rival’s new partnership. “Over 12 years we’ve built a reputation for amazing delivery speed and attention to customer experience. That’s why we’ve been able to build a market leading position, and it’s very tough to duplicate,” JD.com said in a statement