Tencent Eyes Student Loan Startup Investment Potential

The Chinese Internet giant Tencent Holdings Ltd. has been discussing investing in Fenqile, a startup based in China focused on student lending, in an effort to extend its presence within financial services, The Wall Street Journal reported Thursday (Oct. 1).

Citing unnamed sources in its article, WSJ said that Fenqile has developed a shopping platform through which college students borrow money and agree to pay it back in monthly amounts.

And should Tencent take a stake in the two-year-old lending upstart, it would be doing so during an investment round that could value Fenqile at $1 billion. There were no concrete details, WSJ reported, on the ultimate investment that could materialize in this latest funding round, or how much Tencent would commit. Past investors put in $100 million in a 2014 funding round.

In Internet finance, and in China especially, the competition may grow, but it could be that Tencent is covering its bases as Alibaba‘s Ant Financial Services Group partook in a $200 million investment round funding a student lending rival, Qufengi. There are ties between Fenqile and Tencent already in place, as it was started by a former employee from Tencent and has JD.com as a strategic investor (minority owned by Tencent, and Fenqile sells items to students that it buys from JD.com). Fenqile typically charges 10 percent interest on its loans, has rigorous identity checks, and has an army of 20,000 part-time workers who visit dorms to check up on borrowers with past due loans. WSJ noted that the company says its default rate is less than 1 percent.

There’s room for the online segment of the consumer credit market to grow in China, WSJ noted, as it stands at 16 billion yuan, a small slice of the roughly 15.6 trillion yuan market for consumer finance in the country overall, as estimated by iResearch.

[bctt tweet=”There’s room for the online segment of the consumer credit market to grow in China.”]

Against this backdrop, said WSJ, Fenqile hopes to process 10 billion yuan in transactions this year, and that is heady compared to the 600 million yuan seen in the previous year. The company is hiring new staff and is looking to broaden its horizons beyond college students. New products would include auto and even housing loans for former Fenqile users who have been active borrowers with the site when they were in college.

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