Foxconn, best known for being Apple’s largest contract manufacturer, wants to be more than just an assembly line. It’s now expanding into the financial service space for electronics component suppliers.
According to a report by the Wall Street Journal Tuesday, Foxconn has “set up half a dozen” financial service companies that provide loans and other financing options to suppliers in China over the past year.
More than 100 suppliers have taken advantage of its service, amounting to 1 billion yuan, or $US156.8 million, in transactions so far, it said.
Foxconn probably only takes a small chunk of the total transaction amount, and given the company booked more than $US83 billion in revenue last year, the new financing business doesn’t seem to be a huge needle-mover at this point, yet.
But Foxconn’s move into financial services makes a lot of sense considering it’s a much higher margin business than its traditional manufacturing business, which according to the article, only takes about 1% off every iPhone device it makes.
Foxconn already has a massive footprint in the supplier market, allowing it to scale its financial services unit quickly, while making it easier to underwrite and vet potential borrowers. That’s probably why its managing director Jack Lee sees the financial services unit going public within five years.
This makes Foxconn the latest tech company to move into the online lending space. Companies like Square, Amazon, and PayPal all offer similar lending or cash advance programs by taking advantage of its existing relationships with business owners, which makes it easier to retain and underwrite the borrowers. Chinese tech giants like Alibaba, Tencent, and Baidu also have their own financing arms.
Online lending and new financial services in tech have certainly been one of the fastest-growing areas in the past few years, as seen by Lending Club and OnDeck who went public with a business that mostly relies on such service offerings. But both companies have also been hit hard in the public market recently, indicating waning investor appettite in this space.
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