Big data creates prof­itable con­sumer-fi­nance busi­nesses aimed at per­ceived high-risk bor­row­ers like col­le­gians and young job­seek­ers

China Daily (Canada) - - BUSINESS - By MENGJING mengjing@chi­

In an econ­omy where growth is slow­ing — GDP growth in 2015 at 6.9 per­cent was the low­est in 25 years — and fo­cus shift­ing to do­mes­tic con­sump­tion from ex­ports, con­sumer lend­ing has sud­denly ac­quired sig­nif­i­cance in China.

The con­sumer fi­nance mar­ket is pro­jected to reach 37.4 tril­lion yuan ($5.75 tril­lion) by 2019. A re­cent re­port by iRe­search Con­sult­ing Group said the In­ter­net-en­abled con­sumer fi­nance seg­ment alone is ex­pected to reach 3.4 tril­lion yuan in 2019 from 6 bil­lion yuan in 2013.

In­dus­try in­sid­ers are, how­ever, not un­duly ex­cited by the jaw-drop­ping growth es­ti­mates forWeb-based con­sumer fi­nance. They be­lieve it is a mar­ket with no ceil­ing, and pro­ject a mar­ket size that is much big­ger than cur­rent es­ti­mates.

Xu Ling, gen­eral man­ager of JD Fi­nance,’s con­sumer fi­nance divi­sion, said, “Our re­search showed that less than 15 per­cent of the loans of­fered by tra­di­tional banks are for con­sumers. There is a lot of un­met de­mand wait­ing for us.”

Small won­der, rel­a­tively new firms such as qufenqi. are bet­ting on lend­ing to even job­less, card-less young­sters.

With a base of 8 mil­lion reg­is­tered users, lent 11.5 bil­lion yuan in 2015 at in­ter­est rates lower than that of credit cards is­sues. It turned prof­itable in De­cem­ber in spite of heavy in­vest­ment to ex­pand its busi­ness to 2,500 col­leges in China.

Luo Min, 33, who founded in March 2014, har­nessed both the In­ter­net and big data tech­nol­ogy to mine a for­tune from 1,00010,000 yuan ($608-$6,080) loans to per­ceived high-risk con­sumers like col­lege stu­dents.

“Many col­lege stu­dents don’t have credit cards but they do need cash to buy, say, a new smart­phone or for treat­ing friends to a de­cent din­ner,” Luo said.

Qufenqi of­fers loans to meet such needs. On an av­er­age, col­le­gians bor­row up to 1,000 yuan and make monthly re­pay­ments of about 100 yuan.

On­line con­sumer fi­nance mainly works in two ways. One, con­sumers can buy prod­ucts or ser­vices on e-com­merce plat­forms first and pay in in­stall­ments later.

Two, they can avail loans up­front that are cred­ited to their on­line pay­ment ac­counts with Ali­Pay and such, and fi­nance divi­sion started Baitiao in 2014, a vir­tual credit card ser­vice that al­lows some of its on­line shop­pers to buy prod­ucts first and re­pay in in­stall­ments.

The rise of on­line firms sug­gests the con­sumer fi­nance mar­ket in China is too big for credit card is­suers alone to serve.

Some 800 mil­lion Chi­nese con­sti­tute the po­ten­tial con­sumer fi­nance mar­ket. Of them, about 500 mil­lion do not have any credit in­for­ma­tion in tra­di­tional bank­ing or­ga­ni­za­tions, said an­a­lysts.

“This means, it is dif­fi­cult for them to ap­ply for credit cards or bor­row money from tra­di­tional banks,” said Liu Yannan, chief ex­ec­u­tive of­fi­cer of Bei­jing Tian­dao Ji­ran Tech­nol­ogy Co Ltd, which, in 2015, launched an app of­fer­ing loans to buy­ers of used cars and con­sumer elec­tron­ics.

“It is very dif­fi­cult for tra­di­tional banks to of­fer small loans to con­sumers with­out any credit record. The cost and risk would be very high com­pared with of­fer­ing loans to big-name en­ter­prises.

“But through big data tech­nol­ogy, it is easy for In­ter­net firms to find out who can be good debtors, by an­a­lyz­ing their on­line foot­prints, such as their shop­ping records, oc­cu­pa­tion and ed­u­ca­tional back­groud of their friends on so­cial net­work­ing apps,” said Liu.

Xu of JD Fi­nance agreed. The cost of find­ing a qual­i­fied bor­rower is next to zero for JD Fi­nance thanks to par­ent’s vast data on its on­line shop­pers, he said. JD Fi­nance, he said, has “pro­filed”, or ver­i­fied the cred­it­wor­thi­ness of, 100 mil­lion shop­pers on

Even con­sumers who have credit cards ap­pear to pre­fer on­line con­sumer fi­nance due to its con­ve­nience and ef­fi­ciency, said Min Jie, 30, who re­cently bought a new flat. He spent tens of thou­sands of yuan on­line in 2015, dec­o­rat­ing it. Af­ter max­ing out his credit card, he turned to In­ter­net fi­nance com­pa­nies.

“Ask­ing banks to raise my credit limit was prov­ing to be time-con­sum­ing. You need to make phone calls first, then demon­strate your fi­nan­cial sit­u­a­tion and wait for their ap­proval. So I used JD’s Baitiao ser­vice as an al­ter­na­tive. Based on my pre­vi­ous shop­ping record, they im­me­di­ately granted me 10,000 yuan in credit,” Min said.

Xiong Yuan, 27, a fe­male white-col­lar worker in Bei­jing, took an­other route to easy fi­nance. She did not re­ally need the money but wanted to boost her on­line credit score. So, she logged into Ant Check Later, an In­ter­net con­sumer fi­nance prod­uct of Ant Fi­nan­cial Ser­vice Group, which is backed by Alibaba Group Hold­ing Ltd.

Ant Fi­nan­cial’s credit scores, rang­ing from 350 to 950, are based on anal­y­sis of con­sumers’ on­line be­hav­ior. A score higher than 750 at­tracts VIP perks like travel to Sin­ga­pore with­out visa ap­pli­ca­tion or pri­or­ity check-in at some air­ports in China.

“By bor­row­ing about 1,000 yuan ev­ery month via Ant Check Later, I made on­line pur­chases, but re­paid the money in time over the last six months. So, my credit score has in­creased from 670 to 709 and near­ingmy goal of ex­ceed­ing 750,” Xiong said.

Ac­cord­ing to Ant Fi­nan­cial, its con­sumer fi­nance ser­vice has sig­nif­i­cantly boosted the con­sump­tion of on­line shop­pers. “Those who used to spend less than 1,000 yuan a month have in­creased their spend­ing by 50 per­cent af­ter us­ing the ser­vice,” the com­pany said in an email to China Daily.

Con­sumer fi­nance is clearly a pri­or­ity for the govern­ment as well, given the thrust on eco­nomic growth through do­mes­tic con­sump­tion rather than ex­ports.

In June 2015, the govern­ment ex­panded its pi­lot zone of con­sumer fi­nance from 16 cities to the en­tire na­tion. Pri­vate com­pa­nies, do­mes­tic and over­seas banks, and In­ter­net firms are all en­cour­aged to set up con­sumer fi­nance busi­ness.

An­a­lysts said it is un­likely that reg­u­la­tors will re­strict the de­vel­op­ment of the sec­tor. Li Chao, an an­a­lyst with iRe­search, said for the con­sumer fi­nance mar­ket to blossom fully, ser­vice providers need to im­prove their risk man­age­ment and cre­ate more “off­line sce­nar­ios”.

“There is still room for im­prove­ment in the ac­cu­racy and cost of risk con­trol, given the mar­ket is still in its early stage. Con­sumer fi­nance com­pa­nies need to come up with more ideas to en­cour­age peo­ple to use their ser­vices.

“Most of the small loans are made to on­line shop­pers, those who are about to travel or buy cars. They need to think more cre­atively to cre­ate more op­por­tu­ni­ties for con­sumers to use the ser­vice,” Li said.

Like in any lend­ing busi­ness, bad debts are but nat­u­ral. But, In­ter­net fi­nance firms, be­ing mostly pri­vately held star­tups, are not obliged to dis­close the rate of bad debts. In­dus­try in­sid­ers, how­ever, es­ti­mated de­faults could be around 1 per­cent of to­tal loans.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.