Qudian's CEO, Min Luo, looked a bit shell-shocked.
I was standing a few feet from him when his company went public on the floor of the NYSE. It was, by any standard, a home run: the online microlender had days earlier announced they would seek to float 37.5 million shares at the NYSE at $19-$22. They instead priced at $24—above the range—and opened at $34.35.
No wonder he looked a little rattled while he was ringing the ceremonial bell seconds after the company went public. He had just become a billionaire. He owns 20 percent of the company, which has a market value of roughly $11 billion, so his share of the company is north of $2 billion.
What's this all about? I'll make it simple: global investors want access to the Chinese consumer. There are not many opportunities to get that access. When you have a company that is about lending to the Chinese consumer, you have a lot of interest.
Throw in the fact that the company is backed by Alibaba and its Ant Financial system, which U.S. investors have become familiar with, and you have all the ingredients for a big open.
The key is to understand the Chinese consumer. They are desperate for credit. Traditional Chinese banks aren't providing enough credit, particularly the kind of microcredit that Qudian provides.
What's microcredit? We're talking about a kid who wants to borrow $100 to buy a pair of sneakers and wants to pay it back over six months. Or a family who wants to buy a $300 air conditioner. They can get approval for these kinds of small loans instantly (the average loan is about $150), on their phone. No going to the bank.
These microlenders are leapfrogging traditional Chinese banks, just like cell phone companies have jumped past traditional land line phone companies in developing countries.
They don't just compete against banks—they compete against credit card companies. Except here, there is no point-of-sale devices, or fees associated with them.
We are talking about virtual credit cards. Let Mr. Min explain:
"That means you don't need to take cash or money or a card. You just need to have an account - like you can have a Facebook account, WhatsApp account, it's okay. You can transfer, you can buy fruits, you can go shopping, you can take a taxi anywhere."
Wow. What about the Chinese government? All indications are that Chinese authorities are supporters of this kind of credit. What they do not want are scam companies that prey on consumers.
What's the downside? It's still not clear what a real credit cycle might look like in China. Mr. Min said that delinquencies now are very low—0.5 percent—but we don't know what that might look like in a downturn. In the U.S., it's well known what will happen to these kinds of loans during a recession—delinquencies go up. We can assume the same will happen in China, but we don't know how much.
What's clear is that we are dealing with a new type of financing company, that is not a bank, and not quite a credit card, and that they have access to the Chinese consumer.