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Interview With PPDai's Jack Gu
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In China, people are usually too embarrassed to refuse their friends a loan. However, it is also not always a guarantee they will get their money back according to the original agreement. Shanghai-based PPDai.com is building a peer-to-peer platform to help streamline and standardize this social lending.
JLM Pacific Epoch recently spoke with PPDai co-founder and CTO Jack Gu about the company’s business model and strategy. Gu worked for six years at Microsoft as the director of security technology and also founded Chinese podcast search and sharing site Podlook.com. PPDai's co-founder and CEO is Gary Lu, who has worked at Bank of China and Microsoft.
Pacific Epoch: Could you give us a brief introduction to PPDai?
Jack Gu: We launched the site in beta in July 2007 and did three months of testing. The site started official operation in October 2007. We currently have seven employees, mostly technical staff.
PE: Where did the idea for PPDai come from?
Gu: It came from the idea that micro-lending happens between friends in daily life; it is hard to refuse friends a small loan. We want to provide a platform that ensures the security of these transactions. We were also influenced by Muhammad Yunus and Grameen Bank's Nobel Peace Prize for 2006, which was awarded to for their efforts in micro-finance.
PE: How does your platform work?
Gu: Borrowers and lenders post their loan information, including the interest rates they are looking for. Prospective borrowers are listed on the site, and lenders can choose which to lend to. Loans can range from RMB 3,000 to RMB 100,000 over up to three years. Once the transaction is completed, the site will automatically create an invoice for the loan, which provides legal protection.
PE: Do you work with any third-party payment tools?
Gu: Yes, we currently work with Shanghai-based online payment company IPS and plan to work with more online payment companies.
PE: How do you confirm the credit ratings of your users? What do you do if borrowers are late repaying loans?
Gu: China is improving its credit system to meet the demands of the market economy and electronic transactions; however, the system is still not as mature as those overseas. We will do our best to ensure the credibility of the borrowers. First of all, borrowers provide their identity card file and bank account information, which is similar to Alibaba’s payment tool Alipay requirements. This helps us indirectly confirm the information through the banks. Next, we check financial statements such as bills, credit card records, bank loans and social benefit funds. If the user owns an online shop, we may check their credit rating on Alibaba’s consumer-to-consumer (C2C) site Taobao or eBay’s Chinese site Eachnet, as well as user comments. Finally, we may also do a telephone interview with them.
We send email and text messages to remind people of the loans; if they delay repayment, we have an agent that will help us collect. If they still do not pay, we will sue them.
PE: What does Chinese law say about peer-to-peer lending?
Gu: According to Chinese law, the interest rates for non-governmental loans can be up to four times the base rate for commercial banks. Anything below that is protected by law.
PE: Do you have any cooperation with the government or banks?
Gu: Not yet, but we are talking with them now about cooperation. We offer non-profit student loans and we would like to get help from banks for credit rating records.
PE: How does PPDai generate revenue?
Gu: We will take a commission from borrower in the transaction, depending on the interest rate and the credit rating of the borrower; however, right now we are focused on expanding our user base and promoting the site. We allow users to complete a loan offline after meeting on our site.
PE: The site also has a social network, right? Why did you include this in the business?
Gu: We plan to make this online community more like Facebook, where you connect you’re your real-world friends. Connections between friends that actually know each other is helpful for the micro-credit business. The members of the community will be able to offer feedback on other user’s credit rating. We also plan to partner with domestic social networking sites like Xiaonei.com, Zhanzuo.com, and Wealink.com.
PE: Do you have any competitors in China? What about the lending site Qifang?
Gu: Qifang announced a peer-to-peer student loan site in February, but the site has still not been launched. We are looking forward to learning from each other in order to develop online lending services in the Chinese market.
PE: Has PPDai received investment?
Gu: Yes. We received an investment from Essentia Private Equity in early 2008. The investment was mostly for building the team and the platform.
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