Buy now, pay later
Borrowing to fund their lifestyle is a way of life for China’s millennial, with the easy availability of credit services.
THE cost of the new iPhone X may have caused furore around the world, but Zhao Qijun is not baulking at the US$999 (RM4,200) price tag.
“I hate to hesitate when I see something desirable. I need to have it now,” said the 25-year-old.
Zhao can hardly be considered in the same league as Wang Sicong, the son of Chinese billionaire Wang Jianlin, who made the international headlines last year when he bought, not one, but eight iPhone 7s for his dog.
In fact, the iPhone X costs more than the 5,700 yuan (RM3,650) monthly salary that she earns as an office assistant in Beijing.
But the prohibitive cost of big ticket items such as the new iPhone X has not been a problem for people such as Zhao because consumer credit services like Ant Check Later allow them to pay for their purchases through monthly instalments. She even uses this service to purchase daily necessities.
Ant Check Later is a service by Chinese fintech, or financial technology, giant Ant Financial Services, an affiliate of Alibaba Group Holding Ltd.
Zhao is just one of the many Chinese millennial consumers who are increasingly jumping onto the buy-now-pay-later bandwagon.
According to Ant Financial, one in four between the ages of 18 and 27 in China – these individuals form the backbone of the country’s burgeoning consumer credit landscape – use credit services offered by Ant Check Later.
People born in the 1990s constitute 47.3% of the platform’s registered users, said Hu Tao, vice-president at Ant Financial, who is also general manager of its credit-rating system Sesame Credit.
That translates to 45 million young adults using the money of tomorrow for discretionary purchases, Tao added.
One of the common reasons behind this growing trend is the difficulty that young consumers face in getting a credit card as many do not meet the minimum wage requirements.
But the advancement of technology has now made it easier for mobile credit services to determine the risk profile of consumers who require credit.
Ant Check Later extends consumer credit ranging from US$75 (RM316) to US$7,591 (RM32,000) based on customer risk assessment that is determined by big data analysis. Another key factor is the central government’s approach to use consumption to wean the economy away from a heavy reliance on investments and exports.
To encourage people to spend, regulators in 2014 opened up the online credit market, which today includes a growing range of services, including peer-to-peer, or P2P, lending and virtual credit deals offered by internet firms.
With just a few taps on the screens of their mobile phones, Chinese consumers can sign up for an instalment service option, which is available on virtual wallets, such as WeChat Pay and Alipay.
For instance, one can use Ant Check Later when shopping on Alibaba’s e-commerce platforms Taobao and Tmall, while another credit provider, JD Baitiao, offers instalments for up to 24 months if a consumer makes purchases on JD.com Inc.
Such credit services have been a blessing to retailers. For instance, the average basket size, or price per order, of customers using the Baitiao credit service is twice that of those who choose one-time payments, according to the company.
Users can also loan credit which is deposited to their payment accounts with Alipay or WeChat Pay.
Lexin is a fintech firm that offers instalment shopping and helps users connect with financial institutions which offer loans.
Founded in 2013 by Xiao Wenjie, a former executive at Tencent Holdings Ltds payment subsidiary Tenpay, Lexin owns instalment shopping platform Fenqile, internet-based wealth management tool Juzi Licai, and Dingsheng Asset, an open platform for financial assets.
At the end of June, Fenqile boasted a membership of 16 million users who have an average age of 23.
Xiao said the company’s target audience are young adults with a good educational background, have high income potential, and are eager to get their hands on the latest products and services on the market.
When Zhang Chenguang, a graduate of the Nanjing University of Posts and Telecommunications, wanted to start his own food company last year, he took two loans of US$ 2,277 (RM9,600) and US$1,973 (RM8,300) with the assistance of Fenqile.
The first loan was processed through conventional means but the other involved a much shorter approval process because the company relied on technology for the vetting process.
“For the first loan, an inspector carried out due diligence to verify my personal information and the whereabouts of my parents,” he said.
“The second loan approval process was much simpler. I only had to answer a number of questions through a mobile app and I got the funds in three minutes,” Zhang added.
Interest rates for loans vary based on the duration.
In his case, the rate was 11.7% for a sixmonth repayment period for the first loan, and 9.7% for a three-month repayment period for the other.
While these rates are higher than the benchmark bank loan rate of 4.35% for up to six months, Zhang said the convenience of such services and the flexibility of the loan amount is worth the extra cost.
Instant gratification
In a survey conducted by Ant Financial, most young urban dwellers were found to be comfortable with borrowing money to fund their lifestyles.
Oliver Rui, a professor of finance at the China Europe International Business School, felt that the younger generation are more eager to experience instant gratification instead of doing long-term financial planning.
This phenomenon is largely due to the fact that millennials of today are growing up in an environment of surplus, explained Mei Feng, vice-secretary-general of the Beijing Youth Chamber of Commerce.
Case in point – Zhao used up the US$910 (RM3,800) quota in her Ant Check Later account after purchasing a handbag which wiped out her monthly income.
Zhao even admitted that she does not have enough money to pay her rent for the next three months, but her parents would bail her out.
“I treat bags as my life. I can live without my own house, but I can’t discard my life,” she said. Consumers such as Zhao would no doubt be a cause for concern for the authorities, especially in a time when household debt in the country is on the rise.
But though Zhao may be broke, she has never defaulted on her monthly Ant Check Later instalments. According to Ant Financial, 99% of their users settle their payments on time.
Lexin’s founder and CEO Xiao said many young consumers today are not afraid to take on credit assistance because they would have to undergo a process of consumption upgrade due to the significant life events they have to undergo.
Yu Jiayue, from Southwest China’s Chongqing municipality, paid for her parttime wedding hosting courses using online instalments.
She said the rationale behind her decision is something people from her parents’ generation would not understand.
“Borrowing money is regarded by people from the older generation as a bad thing which keeps you awake in the middle of the night,” she said.
“Today, it’s not a matter of survival, but an investment in myself.”
Then there are customers who could well afford their purchases but decide to pay via instalments.
“If you can get a loan, just get it,” said Yin Ping, an IT engineer in Shanghai’s Zhangjiang High-Tech Park, who earns US$3,340 (RM14,000) per month. “Money is worth less over time because of inflation. So it’s always a good deal to borrow as long as you have your finances under control.”