Company Research Project

BUS 4476 – Strategic Management

Course Research Project Deliverable One (CRPD-1)
Lufax Holding Ltd
(Strategic Management Case Analysis)
Group 7
Team Member Names
Anh Luong Viet Pham - 0770
Duong Thuy Nguyen - 2994
Nam Vu Lai - 0356
Son Vu – 6210
Date (local) Submitted
Sunday, March 21, 2021

Introduction

The research will include 6 parts:

1. Vision and Mission
2. Core Competencies
3. External analysis: Opportunities and Threat
4. Industry Environment Analysis (Five forces model)
5. Competitor Analysis & Competitive Advantage
6. Internal analysis: Strengths and Weaknesses

1. Vision and Mission

1.1. Vision:

(a) Vision Statement: To provide a wide channel for financial asset investment in China

(b) Vision for development – the three HIGHs:

 High starting point (input and construction): Positioned as one of the largest non-standard

financial asset markets in China, Lufax has set up an electronic trading platform through
 massive continous input, recruited world-class talents, and introduced the world-leading

platform technology, risk-control system, and asset channel.

 High standards (Risk Management): Lufax has introduced the world-leading risk assessment

model and risk control system and established industry standards for the non-standard

financial asset market in China by using big data, including industry classification standards,

asset pledge, and credit evaluation.

 High Entry Requirement (Investor Protection): Lufax has seamlessly connected online

distribution channels and offline asset channels by using the world-leading internet, big data,

and risk control technologies; it has established uncopyable competitive advantages by

integrating the internet and finance.

1.2. Mission Statement:

Lufax’s mission is to make retail borrowing and wealth management easier, safer, and more

efficient.

2. Core competencies

2.1. Input and Construction: Positioned as one of the largest non-standard financial asset

markets in China, Lufax has set up an electronic trading platform through continuous huge input,

recruited world-class talents, and introduced the world-leading

platform technology, risk-control system, and asset channels

2.2. Risk Management: Lufax has introduced the world-leading risk assessment model and risk

control system, and established industry standards for the non-standard

financial asset market in China by using big data, including the standards for

industry classification, asset pledge, and credit evaluation.

2.3. Investor Protection: Lufax has seamlessly connected online distribution channels and

offline asset channels by using the world-leading internet, big data and risk control technologies;

it has established uncopyable competitive advantages by integrating the internet and finance

3. External analysis: Opportunities and Threats

3.1 Opportunities for Lufax Holdings, Inc.

- Economic segmentation:

• Lufax performs an asset-light lending marketplace, creating income by matching institutional

investors with borrowers, who are primarily small business owners.

• From 2017 to 2019, Lufax's revenue grew at a compound annual growth rate of 31.1% to RMB

47.8 billion. In 2019, fees from credit support services accounted for 82.2% of the company's

revenue, while service fees and asset management transactions contributed 5.4%.

• Leading growth potential in the FinTech market by service type will arise in the insurance

market, reaching $ 15,343.3 million in global annual revenue by 2023.

• Leading growth potential in the FinTech market by carrier type will arise in the payment

processor market, reaching $ 22,163.8 million in global annual revenue by 2023.

• Leading growth potential in the FinTech market by technology will arise in other markets,

reaching $ 22,727.3 million in annual global revenue by 2023.

• FinTech market size will be most obtained in China with 19,664.4 million USD.

- Political/legal segment: to regulate Fintech companies' development in the financial and

services industry, the Chinese government has issued a 3-year plan and market-appropriate

policies and regulations for this. Specifically, there will be six main tasks to develop the Fintech
industry and improve services. Besides, China will also strengthen regulations on Fintech under

a unified management system. These Chinese policies will also ensure cybersecurity safety and

protect financial information for users, addressing financial risks in the market and the region.

- Socio-cultural segment: According to KPMG's latest Global Consumers and Convergence

Survey recently, when surveying subjects aged 16-65 in 31 countries, they all own different

technology equipment, and especially in China, the number of China's tech-savvy consumers

participating in online shopping is increasing, much larger than the rest of the world. Egidio

Zarrella, Partner, KPMG China, says: "Asian consumers - led by China - are doing more of their

purchasing online. Asia has also seen exponential growth in the use of mobile devices for both

purchases and payments. China is also leading the way. in the mobile banking space because of

the rapid take-up of smartphones. "At 80%, Chinese people are willing to track how online

devices are used and are ready to use technology to receive advertisements. Or in 24% of the

surveyed population in China, people tend to leave regular TV services to use electronic devices

with the Internet with a lot of video content available. 80% of Chinese consumers say they prefer

to watch TV shows and movies via their laptop or personal computer, compared with the global

average of 51%. These specific numbers prove the huge Chinese interest in e-commerce

platforms, creating opportunities for Lufax to reach out and engage users.

- Technological segment: the explosion of technology, machine learning, and advanced artificial

intelligence, Lufax can rely on the development of AI and human factor analysis, using it as a

basis for predicting demand needs of consumers, divide the right audience and create suitable

tools to serve customers better. Also, Lufax can use these developments to improve efficiency,

lower costs, and other conversion processes.

With such these segments, it is undeniable that these are positive opportunities for Lufax holding

in particular and other Fintech companies in general in the Chinese market to expand the

business, develop markets and launch a new appropriate strategy towards consumers. Now,

Fintech grows not only creating opportunities for businesses and consumers, but the industry is

also meaningful to governments.

3.2 Threats for Lufax Holdings, Inc.

Currently, the Chinese government is making a series of strict regulations for Fintech companies,

leading to a series of Fintech companies in this country having limited development vision or

delaying their implementation plans. In the current banking industry, the government has stated

that they will probably limit the number of banks the fintech platform is affiliated with due to the

fact that these companies hold too much market share of tech companies. When Fintech

companies have too much market share in the market, these companies will make the country's

economy easier to face the risk of bad debt. According to Lou Jiwei, China's former finance

minister, he said, "We can limit the number of banks that any single platform can work with, so

as to let more platforms do similar businesses under the same conditions,"

In addition, Lufax Holdings' threats are coming from other factors, typically issues related to

consumers such as changing taste preferences, switching to other technologies, or the changes of

its company policy. These have led to the fact that environmental factors or the development of

Lufax can be severely affected and affect the current business situation.

For Lufax, there is another problem related to New Entrants. In the same market, Lufax can

reach consumers using the media, social networks, or e-commerce sites, so when other

companies enter this market, they can do the same as Lufax. Technology products manufactured
by companies already in the market, especially Lufax, may be replaced by products from others

that are relatively better in terms of price and quality given the situation tailored to the moment

and produced from remarkably profitable fields. Substitution products are dangerous because

companies are constantly threatened with being replaced. New entrants' high threat of substitutes

will lead to low profits for Lufax as it restricts industry profits due to fears of being replaced by

other products.

4. Industry Environment Analysis (Five forces model)

The five forces in Porter's model could influence Lufax FinTech and China's wealth management

transformation in customer service and profitability.

4.1. The threat of new entrants:

The market that Lufax targets is extremely potential, so many competitors want to share this

piece of cake with Lufux. The global peer-to-peer (P2P) market size is valued at $ 67.93 billion

in 2019 and is expected to reach $ 558.91 billion by 2027, growing at a CAGR of 29.7. %

between 2020 and 2027. New entrants in an industry can bring new potential to put pressure on

the prices, costs and investment prices needed to be competitive. However, the retail credit and

wealth management business sector has major hurdles for participants, which is fortunate for

players like Lufax FinTech and Transformation of Wealth Management in China. If the barrier to

entry is high, it means that Lufux will limit the competitive pressure from competitors, which is

extremely beneficial for Lufax FinTech and Wealth Management Transformation in China. New

draft regulations in China target licensed online small-lenders (OMs) to prevent risks associated

with their rapid construction, but could also slow down the pace. growth of companies operating

in the fintech sector.

4.2. The threat of substitute products or services

There are always alternatives or different alternatives to products in an industry. As for Lufax

Holding, too, the high threat of substitute products, due to the higher competition, similar

products of Lufux holding also appear in the market, Lufax Holding competes with Lending

club, Renrendai, Xiaobai Maimai, Orix. Corp, Jianpu Technology, as well as some others. The

company is operating in the Financial Services industry as part of the Credit Services industry.

So Lufux needs to clearly define a development strategy in this fiercely competitive market.

4.3. Buyer's bargaining power

The industry in which Lufax FinTech and Wealth Management in China operate is very

fragmented, with a lot of Chinese and international companies involved, which leads to users

getting an advantage due to the competition among company. The small business loan segment is

expected to account for a significant share, due to the increase in the number of small businesses

in developing countries. When customers are enterprises, they dominate in quantity and can

come back to negotiate Lufax Holding policies to maximize benefits, which reduces the interests

of Lufax holding..

Lufax FinTech will concentrate on differentiating its product and growing demand with end

customers through various marketing strategies. This will raise demand for the product from a

variety of buyers while also working to moderate buyer power. Lufax FinTech can use

economies of scale to reduce production costs. It would be able to draw a large number of

customers for its goods if it sells products at moderate prices to buyers, and hence will be able to

break away from the strong bargaining power.

4.4. Bargaining Power of Suppliers

There are various independent suppliers within the Lufax FinTech and the Transformation of

Wealth Management in China industry, all of which are made up of a few relatively small

operations, resulting in weakened overall supplier control. Suppliers should search out new

opportunities and invest in alternative markets, which can be difficult for Lufax FinTech to do.

4.5. Intensity of Rivalry:

Ppdai, China's first peer-to-peer lending website, launched in June 2007 after being inspired by

P2P sites in the United States. Hongling Capital, Renrendai, and Lufax are only a few of the big

online lending platforms that have emerged since then. The industry as a whole moved into the

"fast lane" and progressed quickly. The Chinese P2P industry has expanded at an exponential

pace since 2012, with multifold increases in all key indicators such as the number of investors,

borrowers, channels, and market turnover. Currently, Lufax Holding is a leader in the peer-to-

peer lending sector in China, and on the way to international markets, the intensity of

competition in this industry is very high, coming from competitors in China. country, as well as

internationally. Some prominent companies providing services competing with Lufax are:

Lending club, Renrendai, Welab, ...

5. Competitor Analysis and Competitive Advantage

5.1. Competitor Analysis

Lufax Holding’s top competitors include Lending Club, Mastercard, WeLab and Dianrong. Here

are analyses of Lending Club and Mastercard.

A. Lending Club:
(a) Overview: Lending Club is an online financial community that brings together creditworthy

borrowers and savvy investors.

(b) Strengths:

 Lending Club has built expertise at entering new markets and making success of them.

 They have strong distribution network as well as strong dealer community

 The workforce is skillful

 Consistency of Lending Club products’ quality due to automation of activities

(c) Weaknesses:

 Although Lending Club products’ quality is very consistent, they have gaps in the

product range sold by the company. This can give their new competitors chances to enter

the industry.

 They are not doing well in dealing with new entrants. In fact, the company has lost small

market share in the niche categories.

 They need to invest more on technology due to the scale of expansion and different

locations that the company is planning to expand to.

 They are not doing well in establishing financial plan.

(d) Objectives:

 Better establish the brands of Lending Club

 Introduce a new product or service to fill in the gap between product range sold by the

company.

 Increase Lending Club market share

  Improve customer loyalty

 Increase the percentage of repeat business

 Increase sales of Lending Club

 Bring in new customers to Lending Club

(e) Strategies:

 Selling more to existing customers

 Focusing on customer service and marketing efforts on retaining customers

 Servicing Lending Club loan through technology-enabled processes

B. Mastercard

(a) Overview: Mastercard Incorporated is an American multinational financial

services corporation headquartered in the Mastercard International Global

Headquarters in Purchase, New York, United States. Its principal business is to process payments

between the banks of merchants and the card-issuing banks or credit unions of the purchasers

who use the "Mastercard" brand debit, credit and prepaid cards to make purchases.

(b) Strengths:

 Consistently strong financial with a healthy balance sheet

 Second highest market share in payment cards segment

 Implementation of latest payment technology

 Value added services adds diversity, besides giving it a competitive edge

 High profit margin business which is quintessentially global in nature

(c) Weaknesses:
  Involvement in multiple claims and legal proceedings

 Security issues due to data breach

(d) Objectives:

 Involvement in multiple claims and legal proceedings

 Security issues due to data breach

(e) Strategies:

 Growing the core of Mastercard (Credit, Debit, Commercial, Prepaid, Digital-physical

convergence, Acceptance)

 Diversifying customers and geographies (Financial inclusion, new markets, businesses,

government, merchants, digital players, local schemes/switches)

 Building new areas (Data analytics, consulting, marketing services, loyalty, cyber and

intelligence, precessing, new payment flows)

5.2. Competitive Advantage:

Lufax have a lot of competitive advantages with Ping An backing. They include user acquisition

and access to proprietary data, IT technologies, advanced risk assessment models, risk control

systems, lowest trading costs, most diversified products, best asset liquidity and best client

experience which cannot be replicated. The total number of registered users grew to 46.2 million

as of December 31, 2020, from 44.0 million as of December 31, 2019. Their credit data is over

15 years of through-cycle, easily accessed through Ping An ecosystem analytics and insights and

enterprise data. With low trading costs, the prices will be 0.5-2 percent lower than comparable

products in order to create the most appealing low-cost asset trading platform. Moreover, apart
from standard products such as stocks, gold, and foreign exchange, all non-standard assets can be

exchanged in Lufax, which serves as a platform for the exchange of diversified products. Lufax

also creates a secondary market for non-standard assets worth several billion yuan, such as trust

plans, bank wealth management products, private equity, and segregated fund products,… With

convenient trading services, Lufax’s clients are allow to trade at anytime and anywhere. They’re

also ensured that their funds and information are safe, which makes up the best client experience

ever.

6. Internal analysis: Strengths and Weaknesses

6.1. Strengths:

(a) Resources:

 Lufax possesses a comprehensive collection of financial licenses.

 Lufax has a sophisticated and trustworthy online investment and finance network.

(b) Innovation:

 Focus on structured innovation

 Ability to transform high-quality assets into goods quickly.

 Service innovation capability for investors and borrowers centered on customization

(c) People:

 Professionals and financial managers with extensive foreign business experience

 Profound expertise in product design and production with a wide range of partners and

standards for the selection of asset packages and structured designs

6.2. Weaknesses

TIE ratio is low compared to competitors: TIE ratio is low indicates that Lufax covers its interest

charge by much riskier margin of safety. In 2020, Lufax TIE ratio was 7.25x while mastercard

TIE ratio was 21.42x (3 time smallers). Firm’s creditors might bring legal actions if the firm is

unable to paydown debt, which could possibly result in bankruptcy.

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