The worsening environment of P2P lending in China has taken a significant hit to Yirendai's loan origination volume. The company is changing its business model from unsecured consumer lending to consumer credit and wealth management.
Yirendai (NYSE: YRD), a leading P2P lending platform in China, posted its 1Q19 earnings result after the market closed. Quarterly net revenue of CNY 1,980 million (USD 295 million) represented a decline of 47% YoY, driven by a 56% revenue decrease in its P2P lending business following the harsh P2P regulation and partially offset by a 23% revenue increase from its wealth management business.
The worsening environment of P2P lending in China has taken a significant hit to Yirendai's loan origination volume. On its earnings call, the CEO highlighted that the company was set to change its business model from unsecured consumer lending to consumer credit and wealth management. Furthermore, the company has successfully closed its merger with CreditEase and the combined company will be operating under a new brand of Yiren Digital. Share price rose almost 4% following the earnings release.
Yirendai has facilitated around CNY 86 billion (USD 13 billion) in loans from its inception in March 2012 through March 31, 2018. Just like other P2P players, the company charges borrowers for facilitating the transactions and charges investors for using its investing tool. As an intermediary or a marketplace, Yirendai does not invest in its own capital in those loans it facilitated.
Undoubtedly, the P2P model comes with much higher credit risk, market risk and liquidity risk than traditional bank lending. China's P2P industry, once viewed as an innovative way to reform the country's finance sector, has been dramatically shrinking after it triggered lots of financial frauds, borrowers' defaults and investor rage. According to Bloomberg, as few as 300 companies are expected to remain by the end of this year, a number down by 70% after dropping by over 50% in 2018. The industry consolidation is likely to accelerate as the P2P investors leave smaller platforms for larger platforms which are more likely to obtain relevant licenses.