The cost of acquiring customers on online lending platforms is over a thousand yuan, but the conversion rate is less than 1%.

Despite the rising cost of acquiring customers, Internet financial companies are "happy" to invest large amounts of money in order to expand and obtain better financing. However, they ignored the financial risks that continued to accumulate as the scale expanded.

As the Internet finance industry enters a period of rectification, most Internet finance practitioners have found that the cost of acquiring effective investment customers is becoming increasingly high.

According to data from third-party platform Touzijia, in the field of financial entrepreneurship , the investment and customer acquisition cost of an Internet financial startup company ranged from 300 to 500 yuan in 2013, while it rose to 1,000 to 3,000 yuan in 2016.

In the early days of an Internet company, competing for users and traffic is an unavoidable topic. After accumulating a large number of users, think about how to make money from them. This model has been proven to be able to cultivate "unicorns" in the Internet field.

But industry insiders pointed out that unlike other Internet start-ups, Internet financial companies have financial attributes. As the number of users and investment funds increases, how to control risks becomes a top priority.

Valid customer unit price 1500 yuan

From 2013 to the present, most Internet finance practitioners have personally felt that the platform's customer acquisition costs have been rising year by year.

"Currently, the average cost of acquiring effective investment customers in the industry is 1,500 yuan. This is only the cost the platform spends on channels, and does not include the platform's own promotional activities, such as returning investment funds and providing subsidies to new users." A marketing staff member of an online lending platform told the International Financial News reporter.

The above-mentioned promoter further explained to the reporter from the International Financial News that the specific value of the platform's customer acquisition cost varies depending on the channel. The current mainstream channels include: search engine optimization, search engine marketing , programmatic buying, online loan vertical media cooperation, operator pop-ups, WeChat marketing , etc.

Taking the traffic giant " Toutiao " as an example, its price quotation shows that the payment per click was 0.8 yuan in 2013, and it increased to 2 yuan in 2016. Nowadays, the cost of promoting a soft article on some major WeChat public accounts can easily be hundreds of thousands or even millions of yuan.

"The trend is for customer acquisition costs to rise. On the one hand, there are industry restrictions, and on the other hand, consumers are becoming more cautious," explained the promoter.

Today, regulatory dynamics and frequent risk events have seriously affected users' trust in the industry. Some people with lower risk appetite have already chosen to stay away from the online lending industry.

The decline in effective customer conversion rate is also an important reason for the increase in customer acquisition costs. An executive of an online lending platform that has been established for nearly two years told the International Financial News reporter that the conversion rate of effective customers of several mainstream websites or apps is less than 1%, or even only a few thousandths.

In order to increase the conversion rate of effective customers, the platform is also trying various channels. For example, they can manipulate the rankings in application markets such as the APP Store, Android Market , and Xiaomi App Store , or cooperate with applications with large installation volumes such as Didi Chuxing.

"The biggest cost for online lending platforms is customer acquisition, and the cost in this regard even exceeds 50% of the overall expenditure," said the above executive.

Risk control costs should not be ignored

Despite the increasing cost of acquiring customers, Internet financial companies are still "happy to do this" and invest huge amounts of money. The reason for this is, on the one hand, the need to expand the market, and on the other hand, to better obtain financing.

In the Internet industry, start-ups all hope to achieve success by growing the number of users, so subsidy wars, price wars, marketing wars and other phenomena are common. Investors also place more emphasis on indicators such as trading volume and number of users.

Internet finance companies, which have half Internet "bloodline", also face the same assessment standards. The head of an Internet finance company that has just received Series A financing told the International Financial News reporter that the funds raised will be mainly used to expand the market and increase the number of users. "The goal is to double the number of users every month, which is also the requirement of investors."

However, Internet financial companies have another half of financial "genes". In the financial field, increased scale means exponentially increased risks. For online lending platforms, as the loan balance increases, they should pay more attention to indicators such as bad debt rate and overdue rate.

Regarding this phenomenon, the above-mentioned executive stated that the purpose of VC and PE investing in start-ups is to exit and cash out as quickly as possible. Therefore, we pay special attention to user scale and transaction amount. In addition, many managers of Internet financial companies come from the Internet industry and lack awareness of financial risks.

"They don't realize that there is a lag in the outbreak of risks. For example, many targets have a three-year term, but the risks do not break out until two years later." The above-mentioned executive told the International Financial News reporter that the so-called customer acquisition costs of online lending platforms cannot simply refer to marketing and promotion costs, but the costs of risk control should also be included.

Specifically, the risk control of online lending platforms is mainly reflected in the review of borrowers. It is not only necessary to comprehensively assess the borrower's repayment willingness, repayment ability and use of funds, but more importantly, to conduct a comprehensive analysis of this information and establish a risk control model. In addition, it is necessary to strengthen the management of borrowers during and after the loan.

And evaluating investor information is also an important step. The above-mentioned executives believe that the "freeloaders" obtained solely through marketing are not the target users of online lending platforms, because once the subsidies are stopped, these "freeloaders" will become dormant users. The platform needs to educate investors and conduct a comprehensive analysis of investors' behavioral preferences, financial strength and risk resistance, and provide different products for investors with different risk preferences.

Small and medium-sized platforms cut off their arms to survive

As customer acquisition costs remain high, some small and medium-sized platforms have chosen to "cut off their arms to survive."

In July this year, Merrill Lynch announced its complete withdrawal from the wealth management sector and will focus entirely on the development of consumer finance in the automotive and 3C products. It is reported that in the nearly one year since its launch, the online C-end transaction volume of Merrill Financial was only around 1 billion yuan. This data can only be ranked in the middle or lower level in the online lending industry.

Relevant data shows that the annualized financial management returns of Merrill Lynch's online C-end users reached 11%, and the costs of various promotional activities and online promotions were around 5%. This means that the capital cost for online financial management users is as high as over 16%.

Zhao Yanyu, CEO of Touhu.com, told the International Finance News reporter that the business models of various platforms in the online lending industry are relatively similar, and the user threshold is very low. There are corresponding products or targets ranging from 500 yuan to 50,000 yuan. Therefore, they inevitably bear huge costs in the process of competing for customers. Over time, the customer acquisition costs of the entire industry have shown an irrational surge.

Industry insiders believe that Merrill Lynch’s transformation may become a landmark event in China’s online lending industry. In the future, more online lending platforms may gradually abandon the financial management side and focus on the asset side. Online lending platforms that focus on financial management will develop in the direction of becoming giants and verticals.