Overview of Consumer Finance Market in China
The consumer finance market in China provides consumption loans to individual borrowers. This market is a part of the personal credit market, which provides personal loans including consumer loans, home mortgages, auto loans, and personal business operation loans.
As a result of the rapid growth in consumption expenditure in China, China’s consumer finance market has experienced significant development in recent years. the balance of outstanding principal of loans in the consumer finance market increased from approximately CNY 4.45 trillion in 2013 to CNY 10.47 trillion in 2017, representing a CAGR of 23.9%.
However, as compared to the large and continuously growing consumption needs, the penetration and density of China’s consumer finance market is still low, which indicates significant growth potential. The balance of outstanding principal of loans in consumer finance market is expected to reach approximately CNY 30.74 trillion by 2022 with a CAGR of 24.0% from 2017 to 2022.
Higher growth rate of consumption loans as compared to other personal loans
In the personal credit market, consumption loans demonstrated faster growth compared to other personal loans over the past years and are expected to continue to grow rapidly in the foreseeable future.
The balance of outstanding principal of consumption loans increased at a CAGR of 23.9% between 2013 and 2017, which outpaced the growth rate of other personal loans at 18.1% over the same period. The balance of outstanding principal of consumption loans is projected to continue to grow at a CAGR of 24.0% from 2017 to 2022, which will continue to outpace the growth rate of other personal loans at 9.8% over the same period.
The strong growth of consumption loans is driven by the expanding consumption demands of increasingly diversified consumers, which challenges the ability of consumer finance service providers to evaluate the credit profile of the broad population in a cost-efficient way.
Higher growth rate of online consumption loans as compared to offline consumption loans
Consumption loans are primarily offered through two different channels in China: traditional offline retail outlets and online channels on websites and mobile devices. Online consumption loans grew faster than offline consumption loans over the past years, and are expected to continue to grow rapidly in the foreseeable future.
In China, traditional offline channels, mainly operated by financial institutions, play a primary role in the consumer finance market. However, financial institutions face a number of challenges brought by the changing demands of the market, including their slow process in technology upgrades and innovation, slow reaction to new market opportunities and a lack of operational efficiency.
As China’s consumer finance market moves online, online consumer finance service providers, including licensed consumer financial companies, e-commerce driven installment platforms and independent online consumer finance companies, have emerged in recent years to fulfill the fast growing and unmet consumption demand.
As the national consumer credit database maintained by the CCRC continues improving its data coverage and availability along with other growing alternative databases, Chinas online consumer finance service providers have gained greater access to various consumer data as the basis of their credit assessments. Compared to traditional financial institutions, online consumer finance service providers are more capable of managing and pricing credit risks through automated process utilizing big-data analytics technologies. In addition, they are more sophisticated in designing innovative products for and interacting with the tech-savvy younger generation.
The balance of outstanding principal of the online consumption loans has increased from approximately CNY 13.41 billion to CNY 1,037.23 billion between 2013 and 2017, representing a CAGR of 196.5%, and is expected to reach approximately CNY 7.54 trillion by 2022 at a CAGR of 48.7% between 2017 and 2022, which significantly outpaces the growth rate of offline consumption loans. The balance of outstanding principal of offline consumption loans has increased from approximately CNY 4.44 trillion to CNY 9.43 trillion between 2013 and 2017, representing a CAGR of 20.8%, and is expected to reach approximately CNY 23.20 trillion by 2022 at a CAGR of 19.7% between 2017 and 2022. In terms of the balance of outstanding principal as of December 31, 2017, approximately 59.0% of the offline consumption loans are credit card loans, which generally do not generate interests as long as the credit card holders repay the loans on time.
ONLINE CONSUMER FINANCE MARKET IN CHINA
Market Overview
Online consumer finance market provides consumption loans through online channels on websites and mobile devices. Fueled by Chinas robust consumption growth, China’s online consumer finance market has experienced significant growth along with the increasing Internet and mobile penetration over the past years. With the development of technology infrastructure, Chinese consumers are becoming increasingly receptive to online consumer credit products. In 2017, the number of online consumer finance users in China increased to 197.5 million, which accounted for approximately 25.6% of the total number of China’s Internet users, and is projected to increase to 414.8 million in 2022. The balance of outstanding principal of loans in the online consumer finance market increased from approximately CNY 13.41 billion to CNY 1,037.23 billion between 2013 and 2017, representing a CAGR of 196.5%, and is forecasted to expand further and reach approximately CNY 7.54 trillion by 2022, representing a CAGR of 48.7% during the period of 2017 to 2022.