Chi­nese firm makes loans for smart­phones

Pay­max lends small amounts so cus­tomers can buy mo­bile phones and lap­tops.


China is still a coun­try where peo­ple pre­fer to pay up­front — of­ten with wads of cash. Tak­ing out a loan to buy a car is still un­com­mon. Some peo­ple pay for a house with cases of cash.

But af­ter pay­ing for food and rent, not ev­ery­one has so much cash at hand.

Pay­max, a Shang­hai start- up, hopes to coax China’s blue- col­lar and ser­vice in­dus­try work­ers into tak­ing out loans for some smaller pur­chases — mainly mo­bile phones and tablets.

Although the peo­ple who use the ser­vice are strapped for cash, that doesn’t mean they’re not good credit risks.

“I wouldn’t de­scribe my cus­tomers as sub­prime — they just have no [ credit] data,” said Pay­max founder and Chief Ex­ec­u­tive Dan Hu, a Stan­ford Univer­sity alum­nus.

The start- up’s users, mostly across ru­ral ar­eas of China, have never de­faulted be­fore. That’s partly be­cause for some of them, the Pay­max loan is their f irst loan.

Be­yond mo­bile phones and tablets, Pay­max re­cently ex­panded to buy­ers of the Ap­ple Watch. It might add in lap­tops. That’s all it cov­ers.

Hu noted that some­one who re­ceives a loan is “not a bor­rower — they’re a buyer of a mo­bile phone.” That en­ables the ser­vice to avoid peo­ple who are des­per­ate for cash, as well as peo­ple in trou­ble with loan sharks.

That’s one of sev­eral ways that Hu’s start- up stands out from other online loan of­fer­ings in China.

Po­ten­tial lenders face many hur­dles, in­clud­ing the coun­try’s in­ad­e­quate credit rat­ing sys­tem. Hu f ig­ures that the Peo­ple’s Bank of China cov­ers only about 30% of the pop­u­lace with its credit rat­ings. The cov­er­age is even more sparse for bluecol­lar and ser­vice work­ers.

So Pay­max ef­fec­tively built its own credit rat­ing sys­tem, us­ing “non­tra­di­tional data” like a per­son’s mo­bile phone num­ber and chat ac­cess codes to root out “credit card junkies” who are just look­ing for a new sys­tem to scam or who have ap­plied for loans on the grow­ing num­ber of Chi­nese peer- topeer loan sites.

Another method em­ployed by Pay­max is more un­ortho­dox: The com­pany mon­i­tors the keystrokes of po­ten­tial cus­tomers while they are us­ing the Pay­max web­site. Hu said that do­ing this weeds out peo­ple who im­me­di­ately jump to the largest loan amount, or who copy and paste in their ad­dress, which might sug­gest some­one ap­ply­ing at mul­ti­ple loan sites.

To some that sounds creepy, but the Pay­max team be­lieves that smal­l­loan seek­ers, who are in­formed about how the site works, won’t mind the in­tru­sion.

A typ­i­cal loan for a Pay­max cus­tomer is about $ 300 for a mo­bile phone or tablet. The loan usu­ally lasts about 12 months, but 24 months is also an op­tion. The rates aren’t cheap: 3% a month plus a 1% fee.

Although it lends to smart­phone buy­ers, Pay­max es­chews In­ter­net re­tail­ers. The loan com­pany teams up with small and medium- sized gad­get re­tail­ers; store clerks then sug­gest Pay­max as a pay­ment op­tion, and use the Pay­max app to gen­er­ate a QR code that sets off the loan ap­pli­ca­tion process, said to take about 15 min­utes.

A suc­cess­ful loan trig­gers a cash re­ward for the sales­clerk in the form of a “red en­ve­lope” that con­tains a ran­dom amount of cash; it could be from $ 1.60 to $ 32 for a sin­gle sign- up.

Pay­max makes money from a ser­vice fee as well as the f lat- rate in­ter­est on the loan.

“There’s not enough data yet for vari­able rates,” Hu said, but it’s some­thing that the com­pany is work­ing on so it can of­fer lower rates to safer loan ap­pli­cants — and higher ones to riskier bets. It has is­sued 30,000 loans so far. Pay­max said it’s in 3,000 in­di­vid­ual stores in China.

Pay­max hasn’t got­ten into China’s top elec­tron­ics re­tail­ers, such as Gome or Sun­ing, partly be­cause its loans don’t cover pur­chases of home ap­pli­ances, and partly, Hu con­cedes, be­cause those ma­jor compa- nies would rather han­dle loans them­selves.

Pay­max is also try­ing to avoid go­ing head- to- head with China’s online giants such as Alibaba, Baidu and Ten­cent, which are al­ready get­ting into f inance and online bank­ing.

“They have lots of data al­ready,” Hu said. He pre­dicted that they’ll go into the loan busi­ness, start­ing with white- col­lar work­ers and, even­tu­ally, the blue- col­lar mar­ket.

In the mean­time, he’ll fo­cus on build­ing mar­ket share among China’s 200 mil­lion young blue- col­lar and ser­vice in­dus­try work­ers.

Zhang Peng LightRocket vi a Getty I mages

A CHI­NESE CHEF looks at his smart­phone dur­ing a break. Pay­max, a Shang­hai start- up, hopes to coax China’s blue- col­lar and ser­vice in­dus­try work­ers into tak­ing out loans to buy mo­bile phones and tablets.

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