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 Star Malaysia - Star2 - - Living - By HE WEI

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.”

— AP

Bor­row­ing to fund their life­style is quite the norm for young Chi­nese spenders, who’d rather pay monthly in­stal­ments than save.

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