Credit score provider Fair Isaac Corp., more commonly known as FICO, is reportedly ready and willing to support China’s rising P2P and alternative lending market, despite the high risks associated with such a young sector.
Reports published by BloombergBusiness on Tuesday (June 16) said FICO wants to invest in China’s P2P lending and online finance market so it can snag a share of the industry early on. According to the firm, FICO knows it will likely lose money at first.
“We want to put our risk management know-how in the place where it’s most needed — Internet finance in China — even though for us it’s a money-losing business for now,” said Sandy Wang, who directs FICO’s P2P solutions arm of its China unit. The remarks were made in an earlier interview, reports said.
China’s digital lending space is booming. According to Yingcan Group, in 2014 the nation has seen nearly 13 times the number of transactions it saw just two years prior, reaching $41 billion in volume. But experts predict that at least 90 percent of these online lending platforms will fail in the next few years, in part due to a lack of risk management.
According to Wang Kun, who serves as the CEO of Duanrong.com, the young sector experiences a bad loan ratio of about eight percent, with about 20 percent of loans facing default.
The risky business means that there is a gap that needs to be filled in China by risk management providers. According to reports, more than 40 corporate customers that pay more than $16,000 have all adopted FICO’s cloud-based alternative finance platform since February, according to Sandy Wang. But FICO will need many more in order to break even and begin to become profitable in the nation, though Wang did not provide an estimate of how many customers it will need to do so.
With such a high failure rate in the P2P lending sector, China has not seemed the least bit deterred from growing its market and investing in players. State officials provided public support of the industry earlier this month, though the State Council did not provide details on how it would boost the crowdfunding and alternative lending sector. Days later, Chinese tech conglomerate Beijing Kunlun invested more than $34 million in a P2P lending platform, though the business is based in the U.K.