How WeLab is doing things right

WeLab Holdings, a Hong Kong-based financial technology unicorn backed by big names like Li Ka-shing’s TOM Group and Jack Ma’s Alibaba Group, has filed a listing application with the Hong Kong bourse.

A draft prospectus reveals an interesting aspect about the online lending startup, which was founded in 2013 by a Stanford business school graduate, Simon Loong.

According to the document, which was uploaded onto the stock exchange website on Tuesday, there is a special agreement between some existing investors and Loong that will give the founder and CEO substantial voting control in the company.

Under the deal, the investors had granted Loong an irrevocable voting proxy over all shares they own in the firm.

Based on the information in the prospectus, the shares involved in the voting agreement amount to around 11 percent stake in the startup. As Loong himself holds 23.07 percent stake in the entity, it means he effectively controls 34 percent of the shares before listing.

That would give Loong voting control, giving him a free hand in steering the fintech entity as it looks to the next stage of growth.

Retail investors are likely to welcome the arrangement as Loong secured bigger control without resorting to a weighted voting rights structure, in which some shares will have greater voting powers than others.

Indeed, WeLab has made a good decision as it is treating all stockholders as equal, with the shares held by the ordinary investors no different from those held by Loong and coming with equal voting power per share.

The decision makes sense, given the concerns in the market about weighted voting rights structure, which has been a feature in some tech firms.

The lackluster retail response to smartphone maker Xiaomi’s IPO, for instance, has been attributed in part to such worries.

WeLab has had an enviable business track record, moving from strength to strength after its founding five years ago. The company provides loans to borrowers in Hong Kong and mainland China by analyzing their creditworthiness using big data.

In China, the fintech startup is tapping large parts of the population that lack a credit history and are unable to borrow from traditional financial institutions.

With such unique business model, and Loong’s background as a banker, WeLab caught the attention of many high-profile investors. TOM Group, a technology investment unit of CK Hutchison, holds 6.76 percent stake in WeLab. Other backers include Alibaba Group, Malaysia’s Khazanah Nasional, and Sequoia Capital.

The key element behind the success of WeLab is a self-developed consumer lending technology platform with an end-to-end suite of services. The company ensures online customer acquisition, fraud and credit risk management, loan application processing and loan management services to its funding partners to serve borrowers.

While WeLab is a financial institution, it has positioned itself as a tech company, as the startup is using latest technology to provide loans to customers.

The firm claims to have developed proprietary predictive technology that aids risk and credit management strategies in accurately and efficiently pricing and allocating loans. It utilizes machine learning and artificial intelligence to power its core technology systems and data analytics capabilities.

In Hong Kong, WeLab operates as a pure online consumer lending platform by directly extending credit from its own balance sheet. It offers personal installment loans on the WeLend platform, with tailored features on aspects including pricing, tenor and the loan amount.

In 2017, the average loan amount was HK$87,194, and the average tenor was three to four years, according to the company. The average effective interest rate was 24.7 percent. As of end-March 2018, it originated HK$2.3 billion in loans on the WeLend platform since inception.

In China, WeLab markets its loan service as WoLaiDai, which has accumulated over 28 million registered users. The China operation has facilitated 2.1 million loans from inception, as of end-March.

According to iResearch, WoLaiDai mobile app ranked second among loan facilitation platforms and third among online consumer credit platforms in China by number of monthly active users in 2017 and the first quarter of 2018.

Last year, the average loan amount on WoLaiDai was said to be 6,752 yuan, the average tenor 10.6 months and the average interest rate 25.5 percent. As of end-March 2018, WoLaiDai facilitated 13.3 billion yuan in loans while maintaining delinquency ratio at a level of 0.4 percent to 1.5 percent on loans that are 30 days past due.

In 2017, WeLab recorded revenue of US$155 million, up from US$30 million a year earlier, and swung to a net profit of US$17.7 million, from a US$25 million loss a year ago. The net profit margin was reported to be 11.4 percent.

With such strong growth, and given its plan to become a virtual bank in Hong Kong, WeLab may well find that it will emerge as a choice of investors who bet on the so-called new economy.

Originally published at on July 5, 2018.

A columnist in political development in Greater China region, technology and gadgets, media industry, parenting and other interesting topics.

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