Plas­tic fades

Credit cards are be­ing re­placed by on­line fi­nance

China Daily (USA) - - FRONT PAGE - By JIANG XUEQING jiangx­ue­qing@chi­nadaily.com.cn

Liu Wei, 23, a stu­dent from the China Univer­sity of Po­lit­i­cal Sci­ence and Law, wanted to buy a new lap­top but could not af­ford it. The monthly al­lowance of 1,600 yuan ($240) from her par­ents was just enough to cover only the liv­ing ex­penses.

So, when Liu learned about a con­sumer fi­nance ser­vice called Baitiao, she im­me­di­ately ap­plied on­line for credit.

Next, she pro­duced her stu­dent ID card, reg­u­lar ID card and bank debit card for ver­i­fi­ca­tion by the lender’s on-cam­pus agent. In­less than an hour, Liu was granted a credit of 5,000 yuan. There was no credit card, just di­rect credit into her bank ac­count. Liu bought her fa­vorite lap­top in a jiffy.

Mil­lions of Chi­nese con­sumers such as Liu, who had never used plas­tic cards to “buy first pay later”, are now en­joy­ing the con­ve­nience of easy dig­i­tal-age credit.

China’s e-com­merce gi­ants are ex­ploit­ing big data and on­line tech­nolo­gies to of­fer credit to them, par­tic­u­larly younger e-shop­pers like Liu.

This has cre­ated a new line of con­sumer fi­nance busi­ness that is nib­bling away at the edges of credit cards and driv­ing card-is­suers such as com­mer­cial banks crazy.

So much so that for the first time since 2008, the num­ber of credit cards in use fell in 2015. China had 432 mil­lion credit cards in use last year, down 5 per­cent from 2014, ac­cord­ing to the Peo­ple’s Bank of China.

Speak­ing anony­mously, an of­fi­cial at a bank’s credit card cen­ter said: “We have felt ris­ing pres­sure from large in­ter­net com­pa­nies like Alibaba Group Hold­ing Ltd and Ten­cent Hold­ings Ltd as they have be­gun of­fer­ing their own credit ser­vices to con­sumers.”

Such on­line credit is of­fered via prod­ucts like Ant Check Later of Ant Fi­nan­cial, an arm of Chi­nese e-com­merce gi­ant Alibaba.

Ant Check Later ex­tends con­sumer credit rang­ing from 500 yuan ($75) to 50,000 yuan based on its own risk assess­ment of cus­tomers. Credit is in­ter­est-free for up to 41 days.

The prod­uct is ac­cepted by more than 40 con­sumer-fac­ing plat­forms, in­clud­ing ma­jor e-com­merce play­ers, on­line-to-off­line or O2O ser­vices, and re­tail­ers of com­put­ers, com­mu­ni­ca­tions equip­ment and con­sumer elec­tron­ics.

Pay­ments can be made in in­stall­ments at three-, six-, nine- or 12-month in­ter­vals. In­ter­est rates vary from 2.5 per­cent to 8.8 per­cent.

Young con­sumers, it ap­pears, wel­come such prod­ucts. More so be­cause tra­di­tional credit card is­suers typ­i­cally steer clear of them due to per­ceived high risk. More than 60 per­cent of Ant Check Later cus­tomers, it is said, have never used con­sumer fi­nan­cial ser­vices such as credit cards be­fore.

It comes as lit­tle sur­prise then that 48.5 per­cent of Ant Check Later users were born in the 1980s; and 33 per­cent in the 1990s. The im­pact of this on­line credit prod­uct on mid­dle­and low-in­come con­sumers is sig­nif­i­cant, in­dus­try ex­perts said.

This has boosted the pur­chas­ing power of con­sumers who used to spend 1,000 yuan or less a month on av­er­age on­line. Now they spend 50 per­cent more or 1,500 yuan a month on­line, ac­cord­ing to Ant Check Later data re­leased in Novem­ber 2015.

In a re­port pub­lished in June, GEO Tech­nolo­gies Ltd, a Bei­jing-based big data so­lu­tions provider, said: “Prod­ucts like Ant Check Later have vi­tal­ity. They are well re­ceived by a wide range of con­sumers be­cause they of­fer small amounts of credit to grass­roots con­sumers on an un­se­cured ba­sis with­out collateral.”

If Alibaba has Ant Check Later, its ri­val JD.com has Baitiao, which of­fers credit of up to 15,000 yuan and de­layed pay­ment op­tions for up to 30 days or re­pay­ment in in­stall­ments.

Baitiao is un­der JD Fi­nance, an arm of JD.com. Xu Ling, vice pres­i­dent of JD Fi­nance, said: “Banks col­lect all kinds of cus­tomer in­for­ma­tion re­lated to em­ploy­ment, in­come, prop-

erty and ve­hi­cle own­er­ship, to as­sess a cus­tomer’s re­pay­ment ca­pa­bil­ity. They even make on-phone en­quiries. But we col­lect use­ful in­for­ma­tion au­to­mat­i­cally or through one-to-one in­ter­ac­tions that are more per­sonal.”

En­cour­aged by the suc­cess of this method, JD Fi­nance ex­tended the Baitiao ser­vice to col­le­gians, but with lower credit lines. In do­ing so, it filled a gap in the de­mand for, and sup­ply of, con­sumer credit.

The gap arose be­cause most banks would not is­sue credit cards to young stu­dents. Some lenders, hurt by a high rate of de­faults among card-hold­ing stu­dents, raised the thresh­old for ob­tain­ing plas­tic in the last fewyears.

As dig­i­tal credit be­came pop­u­lar, es­ca­lat­ing com­pe­ti­tion with tra­di­tional lenders, China Mer­chants Bank Co Ltd and Bank of Com­mu­ni­ca­tions Co Ltd hit back. Re­al­iz­ing that even dig­i­tal credit providers re­lied on tra­di­tional bank­ing chan­nels to ex­e­cute trans­ac­tions, they stopped Baitiao from us­ing their in­fra­struc­ture in Novem­ber 2015.

China Mer­chants Bank went so far as to call Baitiao a loan prod­uct. It fur­ther ar­gued Baitiao’s cus­tomers should re­pay us­ing a debit card, not a credit card.

ButXu of JD Fi­nance main­tains Baitiao trans­ac­tions ap­pear as the com­pany’s ac­counts re­ceiv­ables, not

432 mil­lion Num­ber of credit card in use in China last year, down 5 per­cent from 2014, ac­cord­ing to the Peo­ple’s Bank of China

loans, in fi­nan­cial state­ments.

All this had a pos­i­tive im­pact on banks nev­er­the­less. They started to pull up their credit socks and dou­bled ef­forts to re­cap­ture lost mar­ket share.

GEO Tech ex­pects con­sumer fi­nance will in­te­grate deeply with the in­ter­net in the years to come. It said e-com­merce gi­ants en­joy ad­van­tages in the form of huge num­ber of ac­tive users and hu­mon­gous amount of data on their spend­ing power, shop­ping habits, fre­quency of lo­gins and changes in ad­dress, which will make risk assess­ment cheaper and more ac­cu­rate.

A GEO re­port pub­lished in April found that dur­ing the first quar­ter of this year, 46.7 per­cent of an ef­fec­tive sam­ple of more than 5 mil­lion credit card-hold­ers also used Ali­pay, an on­line pay­ment plat­form launched by Alibaba.

It re­vealed an in­creas­ingly clear trend of in­te­gra­tion of mo­bile in­ter­net and con­sumer fi­nance. The trend was not lost on banks. It drove them to launch cloud­based pay­ment so­lu­tions. For in­stance, ma­jor com­mer­cial lenders such as Bank of China Ltd and China Con­struc­tion Bank Corp jumped on the mo­bile pay­ments band­wagon.

WANG XIAOYING / CHINA DAILY

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