The backup of one of the largest financial conglomerates in China sets Lufax different from other fintech companies.
This article is Chapter 6 of EqualOcean's comprehensive analysis of Lufax Holding. Explore all the chapters of the report:
Chapter 1: Industry evolution
Chapter 2: COVID-19: Unexpected stimulus
Chapter 3: The race between China's fintech trio: Lufax, Ant Group, JD Digits
Chapter 4: Huge growth potential in markets
Chapter 5: Operation strategy: Capital-light model and unique client segment
Chapter 6: Lufax and Ping An
Chapter 7: Diverse client acquisition channels
Chapter 8: Risks
Chapter 6: Lufax and Ping An
Ping An Group is the second Fortune Global 500 financial institution by revenue in 2019 with over three decades of operating history in China. It offers financial services that span the insurance, banking, securities, trust, investment, leasing, healthcare and technology industries. It holds 42.3% of the shares in Lufax.
Full-fledged support from Ping An ecosystem
As the largest fintech spinoff of Ping An Group, which serves approximately 210 million financial services customers, Lufax leverages its parent firm's huge database to source high-quality investors and borrowers. The company pays referral fees to partners in Ping An ecosystem for each loan originated, which is economical for Lufax and provides a better integration of resources within the ecosystem.
From 2017 to 2019 and 2020, in the way of new loans facilitated volume through channel partners, Ping An ecosystem was taking up more shares – from 63.1% in 2017 to 92.9% in 2020. Investors sourced through the Ping An ecosystem typically invest more with the platform, with average assets per investor of CNY 32,228 as of June 30, 2020. The synergies of sharing clients within the Ping An ecosystem further reinforces the loyalty of clients.
Furthermore, Lufax's operations and development strategies are supported by Ping An Group in more areas including branding, credit enhancement, analytics and insights, licenses, and technology. The Ping An Property and Casualty (P&C), the credit enhancement provider of Lufax, reduced the risk exposure of 91.2% of the outstanding loans by the end of June 2020. The access to the decades of credit data and technologies such as AI, machine learning and blockchain, within the Ping An ecosystem, helps Lufax to build a more secure risk management system
A great combination: The 'fin' and the 'tech'
The backup of one of the largest financial conglomerates in China sets Lufax different from other fintech companies. The Ping An ecosystem supports Lufax in many ways, especially in technologies and financial data.
Lufax provides financial service and is fundamentally driven by finance. Information asymmetry is a problem that all the non-traditional FIs are facing but hard to be solved. Without enough data support, many platforms are having trouble pricing their products, especially for loan interests. The decades of data and insights that includes both individual clients and over 10 million businesses from Ping An ecosystem provides Lufax an incomparable advantage.
Also, just as a typical strategy for traditional FI, Lufax assigns most of its employees to do sales and marketing. Ant Group and JD Digits, for example, spend most of the manpower to focus developing technologies, which supports the companies' future development, as a typical fintech company.
Not only independently developing, but Lufax can also benefit from Ping An's technology edge. With the close relationships with members in the Ping An ecosystem, Lufax can leverage the technological advancement to provide digitized financial services. By end of 2019, Ping An ecosystem ranked first globally in fintech-related patent applications.
The expense structure also tells the story. Incubated by Ping An Group, Lufax has been a financial service company from the very beginning. Since 2017, technology-related expenses have been taking increasing amount of the pie in the total revenue - but still a very tiny portion, especially compared with Ant Group and JD Digits, which define themselves as technology firms. However, from another perspective, it means, supported by the technology advancements of Ping An ecosystem, Lufax is able to spend less on independent research and development with the money saved to fund other activities.
Benefits from but not depends on Ping An
The relationship between Lufax and Ping An ecosystem is its inherent superiority, we consider it to be an advantage instead of a drawback. Beyond the benefits, Lufax is able to feed itself without depending on the latter. Lufax provides services including loan account management, product facilitation, technology support to Ping An Group, which took up 2.9% of the total revenue, by the end of the first half of 2020. Also, the company has investment income and interest income from Ping An Group that accounts for 0.5% of its income. At the end of June of 2020, Ping An only contributed around 3.4% of revenue to Lufax, which has also dropped from 5.0% in 2017.