As China restructures its economy from manufacturing and industrial production to domestic consumption, consumer related spending and finance have seen exponential growth in the past two years. As of the end of 2019, China’s consumer loan market surpassed RMB 13 trillion ($1.99 trillion), an increase of over RMB 3 trillion ($459.41 billion) from the end of 2017. China’s former deputy minister of commerce, Wei Jianguo, pointed out last May that the country’s consumer market would reach RMB 45 trillion ($6.89 trillion) in 2020 and is expected to overtake the US as the world’s largest.

Betting on this promising outlook, LexinFintech (Lexin) targets the fast-growing group of educated young professionals in China by offering instalment shopping services through its online platform Fenqile to unleash young consumers’ consumption potential.

Young white-collar workers represent a significant part of the Chinese consumer finance and consumer market. Nationwide, nearly 9 million college graduates enter the workforce every year. With fast-growing income and strong desire for consumption, they are undoubtedly the backbone in China’s consumer market.

According to statistics from Alibaba’s Tmall, people born in the 1990s accounted for 60% of buyers in its 2019 Singles’ Day shopping festival, way above other age groups.

Tapping into a new consumption market with new product offering

In early 2019, Lexin rolled out its “new consumption platform strategy” and has since established a consumption ecosystem consists of installment e-commerce platform Fenqile, membership consumption platform Le Card, and Lehua Card, a product enabling Lexin’s customers to use their credit lines in numerous online and offline consumption scenarios.

“We started as a consumer finance platform, and have now become a comprehensive consumption service provider, connecting our customers with financial institutions and retail merchants both online and offline,” said Jay Wenjie Xiao, Lexin’s CEO.

On the consumer end, Fenqile and Le Hua Card can satisfy customers’ instalment purchase needs in all scenarios; the Le Card app offers a wide range of benefits across various products and services both online and offline, including food and beverage, apparel, hospitality, travel and leisure, to meet the broader consumption demands of Chinese young people. On the business end, Lexin connects users’ consumption and consumer finance needs with financial institutions and merchants, creating a comprehensive consumption ecosystem for consumers and businesses.

In the third quarter of 2020, there were 84.4 million orders generated on Lexin’s three platforms combined, representing an increase of 50% year-on-year. Daily average number of deals in November exceeded 1.1 million. Le Hua Card alone served 6 million offline merchants, created 200 million orders and delivered some RMB 50 billion ($7.65 billion) in offline turnover in roughly the first 11 months of 2020. With over 4,000 brand privileges and benefits, Le Card and Lexin’s other membership products combined served over 2.7 million users in the third quarter.

From the third quarter of 2017 to August 2020, Lexin quintupled the number of customers from 20 million to over 100 million. The company’s journey from angel round in August 2013 to a listing on the Nasdaq in December 2017 took just some four years. Lexin posted a transaction volume of RMB 48.3 billion ($7.39 billion) in the third quarter of 2020, with its annual transaction volume estimated to be between RMB 170 and 180 billion (between $26.03 and $27.56 billion) for 2020. According to CLSA estimates, Lexin’s annual transaction volume is projected to exceed RMB 350 billion ($53.59 billion) in 2022.

McKinsey predicted that China’s consumer market will exceed that of the US and Europe combined by 2035. Internet giants and traditional financial institutions alike are eager to grab a share in the trilliondollar market.

In May 2019, Du Xiaoman Financial, Baidu’s fintech arm, invested RMB 450 million in Harbin Bank Consumer Finance Co. Ltd. to become the latter’s second largest shareholder. This made Baidu the first Internet giant to obtain a consumer finance license, ahead of Alibaba, Tencent and JD. In April 2020, Ping An Consumer Finance Co. Ltd started operations in Shanghai.

To stand out from the competition, market players have to leverage their strengths and adopt the right strategies. The success of Pinduoduo is a case in point. Taobao and JD have formed their respective consumer finance ecosystems and developed their own products. Ant Financial introduced credit pay service, Huabei, and cash loan service, Jiebei, while JD launched its equivalent, Baitiao and Jintiao. According to their latest financial reports, Alibaba (Taobao and Tmall) and JD posted respective GMVs of RMB 6.58 trillion ($1.62 trillion) and RMB 2.08 trillion ($318.45 billion). The two giants had 726 million and 362 million annual active users respectively, with a per capita spending of RMB 9,076 ($1,389.57) and RMB 5,761 ($882.03).

It took fast-growing Pinduoduo only three years to get listed on Nasdaq after its founding. With 628 million annual active users, Pinduoduo posted a GMV of RMB 1.16 trillion ($177,6 billion), according to latest financial statement. Its success is built partly on its ability to attract customers in lower-tier cities, as can be seen from the platform’s per capita spending of merely RMB 1,842 ($282.02), way below that of Alibaba and JD.

Building fintech-enabled technology capabilities

The era of new consumption is driven by innovations in digital and smart technologies. In the face of fierce competition, technology has become the key to business sustainability. Lexin AI Lab serves as the core engine to strengthen the company’s technology capabilities.

In the second quarter of 2020, the company’s research and development (R&D) investments surpassed RMB 135 million ($20.66 million), an increase of 35% year-on-year. Both its R&D expense and R&D personnel as a percentage of total employee headcount have been maintained at industry-leading levels.

Through self-developed technologies such as the Hawkeye risk management system, smart recommendation engine, and Wormhole loan-matching platform, Lexin AI Lab’s primary mission is to drive innovation in risk management, business operations, as well as loan matching. With AI application across the entire service chain, the company has provided instalment e-commerce and loan services to over 100 million users through its Fenqile app.

Lexin leverages its proprietary risk management system, Hawkeye, to improve accuracy and efficiency of its processes including credit extension, business transaction and debt collection. The system can automatically handle 98% of all loan applications and drastically reduces operational costs. It can process 4,700 decision rules and 15,900 data variables with models built flexibly on complex networks and deep learning.

The Wormhole system, which processes over a million orders every day, automatically matches the approved loan requests with the company’s institutional funding partners, with a success rate of over 95%. With that, it facilitates hundreds of billions of renminbi’s worth of loan origination each year. The company’s online customer service robot takes 93% of inquiries. Accuracy of the information provided has improved from 75% to 97% and request diversion rate has risen to 92%, resulting in an overall problem solution rate of 91%.

Lexin was awarded the Best AI and Innovation Lab Award in China by The Asian Banker earlier this year.