The borrower, which operates the Wolaidai mobile lending platform in China and the WeLend online platform in Hong Kong, announced recently that it was looking to raise a $50m loan from the wholesale market in the fourth quarter via ING Bank, the proceeds of which will be used for on-lending in Hong Kong.
While banks that GlobalCapital Asia spoke with readily acknowledged the potential of fintech lending, few have been willing to put their skin in the game.
That is understandable: in Asia, funding for technology firms and start-ups has come mostly via private equity or venture capital, as many banks have a hard time getting a new age, asset light and non-traditional business past their credit committees.
But there is a good chance that the appearance of fintech names in the loan market will be no passing phase. Fintech executives predict that WeLab is only the first of what could be a slew of start-up lenders tapping bank financing.
For traditional banks, that would mean shaking off some of their scepticism around the sector. ING Bank already has. It supplied a $25m facility to WeLab and is an equity investor in the firm. Now it is leading the planned $50m syndicated loan as mandated lead arranger and bookrunner.
There is no denying that fintech can ring all kinds of alarm bells for banks. The news about Ezubao going bust earlier this year is certainly no help — it was once China's biggest peer-to-peer lender but folded after it was alleged to be a Ponzi scheme that duped close to a million retail investors in the country.
Since then, China's banking regulator has clamped down hard on peer-to-peer lenders. But rather than being spooked, it is important to take note of the fact that a number of fintech companies, like WeLab, do not operate on a peer-to-peer platform.
Of course, due diligence must run its course and lenders should look at the structure of deals carefully. Some structures provide more security than others — a senior secured deal, in the case of WeLab, offers the highest level of security in the capital structure, and its loan is secured by accounts receivable. Not all transactions will offer such security, so banks must do their homework on the underlying assets.
But getting into the sector now means that banks will get an inside look into how fintechs are run, and a chance to work with — not against — what is shaping up to be a disruptive force in banking.
Moreover, it is an opportunity for banks to put these start-ups’ much-touted loan growth, asset quality and default rates under the microscope, and see for themselves whether fintech is all it is cracked up to be.
After all, as commodities and other sectors come under pressure, the fast-growing fintech industry could prove a useful one to allocate funds to. There is no point in complaining about how too much money is chasing too few assets and how sparse the market has been for new loan launches if an emerging opportunity is ignored.
While there will no doubt be more fintech fallouts until the sector reaches maturity, it is here to stay. Coming in early will give banks better access to the rewards — as well as the risks.