Student Spending Power Fostering Installment Payment Boom in China

Around the turn of the century, the Chinese government launched a college enrolment expansion plan to raise the national educational level. Consequently, China’s enrolment rate has soared, from around 5% in the early 1990s to 15% in 2002, then leaping to an average of 76% in 2013. This remarkable change has created a special group of young adults with their own particular needs, a group numbering nearly 30 million, according to a research by Shanghai Jiaotong University.

Despite being stereotyped as broke, this demographic actually has a considerable amount of spending power, given that students at university are very often only children, while Chinese parents are known for their willingness to invest heavily in education.

A report noted that in 2013, Chinese students’ average annual spending stood at around RMB11,347 (around US$1,826), or around half of the disposable income of Chinese urban citizens. Their income mainly comes from their parents, who contribute the majority, and part-time jobs.

As a valuable consumer base known for being responsive to fashion and trends, the new student demographic has prompted the emergence of numerous installment payment platforms in China. Here are some of the leaders  in a field getting significant investor interest:

Qufenqi is a Chinese electronics retailer that allows buyers, mostly college students and young white collar workers, to pay in monthly installments. The platform focuses on smartphones, laptops, and other consumer electronics. Customers can choose items from e-commerce sites like Tmall and JD, and then pay for them via Qufenqi by selecting a down payment and the number of months they will pay off the remainder. The company has scooped three rounds of funding since its foundation in March this year. The latest US$100 million Series C was received from existing investors in early December.

Fenqile, a major competitor of Qufenqi, is similar in terms of business model and user base. The company claims its service covers 2,000 colleges and has sales centers in about 40 Chinese cities, including Beijing, Shanghai and Shenzhen. It announced a US$100 million Series B round led by DST Advisors and followed by existing investors of Bertlesmann Asia Investment (BAI) and Matrix Partners China.

Renren Fenqi is an installment payment platform backed by China’s Facebook clone Renren. Like its rivals, it also focuses on consumer electronics. Although Renren had tried to expand to various businesses like group-buying and online video in recent years, its user base never went beyond college students. The company is now shifting to focus squarely on its core user base of college students and young adults this year, so it’s reasonable to start with a business that shares the same users.

Aixuedai also targets the consumer electronics market, but it is planning to expand into categories like travel and training. The company was founded in August this year by former Alipay executive Qian Zhilong and Wang Feng, CTO of internet and mobile phone payment solution provider LianlianPay. The site reportedly has received RMB10 million angel investment.

Aliwey, a similar platform, also announced angel investment from Addend Capital this week.

The payment platforms boom reflects the spending habits of China’s young adults, and how they have changed compared with older generations, who are generally more traditional and conservative in spending.

In addition, this group also has huge earning and spending potential. To tap this market, Qufenqi has launched Laifenqi, a small loan provider for young white collar workers, after receiving new funding. The platform will grant users that are working for the Chinese internet giants or startups backed by venture capitalists up to RMB500k credit lines to purchase cars, homes and holidays, and so on.

Despite the rapid development of this emerging industry, it has been questioned for its hefty commission fee charges. For example, the 24-month installment payment for an iPhone6 is RMB267.33 per month, of which just RMB47 is for service fees, meaning users have to pay a total of RMB6415.92 for a handset which is retails at RMB5,288.

Screenshot from Qufenqi

The installment platforms are mainly funded by self-owned capital, financing from venture capitalists and other channels. Since most of the current installment platforms have been operating for less than a year, they may fall short sufficient capital support, with P2P lending sites providing a major financing source. The high fundraising cost is then taken on by buyers. For example, Fenqile is reportedly cooperating with P2P lending sites of Yooli and Ppdai at an annualized interest of around 11%. The escalating war and continuous capital injection in this filed have pushed leading players like Qufenqi, Fenqile, Aixuedai to lower the interest rates on their installments.

image credit: Shutterstock

Editing by Mike Cormack (@bucketoftongues)