Peer-to-peer lending is booming in China. Traditional financial services face stiff challenges.

In China, online loans are growing in popularity because they are simple and convenient. More borrowers are taking out such loans, particularly young people. The balance of online consumer loans in china has grown about fivefold between 2015 and 2017, reaching 350 billion yuan ($54.6 billion) according to Chinese research company Analyst.

The rise and fall of online loans

China’s government push to encourage lending to smaller companies has created business opportunities for large financial technology companies. President XI JINPING and prime minister LI KEQIANG have both publicly announced support for privately run companies, the central bank has also freed up cash for lending, and eased rules to help small businesses obtain funds more easily.

Roughly 80 percent of the 90 million small and micro-sized enterprises in China don’t have a credit with a bank, according to Tencent backed online lender WeBank.

China issues comprehensive regulations on internet finance

Thanks to their close ties to Chinese technology giants, Alibaba backed online lender MYbank and Tencent-backed Webank can use hordes of payment information or social network data to ascertain the ability of a business to pay back its loans. That’s the kind of basic credit information many companies in the private sector have been unable to provide, and partially why traditional banks prefer to lend to large,  state-owned enterprises instead.

The process of taking out a loan from the bank is slow and complicated, giving companies more incentives to turn to other lenders, even if the interest rate is higher, Yang said. Smaller loans, quicker application in contrast, taking out a loan through an online service in china can take just a few minutes.

The traditional banks rarely issue loans of less than 1 million yuan ($148.385) while the average size of loan on a financial technology platform is often far smaller.

The average size of a loan to small and medium sized enterprises and individual businesses on MYbank is about 9.900 yuan ($1.469) according to minority stakeholder Ant financial. As of the end of september 2018, the latest figures available, nearly 9.78 million of such businesses had received a cumulative total more than 1.19 trillion yuan in loans through the online platform. The non-performing loan ratio was about 1 percent. With internet banking every customers is a VIP.