China to push its tech giants to share consumer credit data

Ant Group

China intends to push tech giants including Ant Group, Tencent and JD.com to share consumer loan data to prevent excess fraud and borrowing, two individuals with knowledge of the issue said, in Beijing’s latest increase in scrutiny.

The plan, if implemented, would effectively end the government’s laissez-faire approach into the business and is another indication of attempts to rein in the nation’s technology champions. Large web platforms have tended to resist handing over their data, a crucial advantage that helps them run operations, manage risk and lure new clients.

Chinese regulators, including the central bank, the People’s Bank of China (PBOC), plan to educate internet platforms to nourish their vast financial loan data to some of the nationwide credit agencies, the two sources said.

The agencies, including the PBOC’s Credit Reference Center, China’s main, centralized credit scoring system, and also the fundamental bank-backed Baihang Credit, the country’s first licensed private credit agency, will share the information more widely with banks and other creditors to satisfactorily evaluate risks and protect against over-borrowing, the people said.

Ant and Tencent declined to comment.

JD.com along with the PBOC did not immediately respond to requests for comment.

The 2 sources declined to be identified as they were not authorised to speak to the press. Details of this regulatory proposal to include Tencent and JD.com in the loan information sharing agreement have not been reported.

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“China seems to be making the unpopular, albeit right choice to sacrifice the current closed loop mentality financial paradigm in favour of a broader digital identity framework with potentially better access and greater efficiency in the long run,” explained Alex Sirakovfounder of AquariusX, a Shanghai-based consultancy.

The program adds to recent suggestions to sharpen scrutiny of the technology champions and rein in empire building, largely in the financial sector. The shift helped bring about the dramatic meltdown of FinTech giant Ant Group’s $37 billion IPO in November.

Since that time, the authorities have established an antitrust probe to Ant’s former parent Alibaba and arranged the FinTech company to shake its lending and other consumer finance companies.

The hottest regulatory suggestion for online companies also comes as Beijing grows wary of loose danger controls , mainly smaller ones, in terms of customer loans along with their excessive reliance on platforms such as Ant to find customers.

“Smaller banks are generally in a weaker position when they partner with fintech giants like Ant. They have heavily relied on Ant’s data to underwrite loans and manage risks,” said one regulator.

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“When defaults happen, they have to shoulder most of the losses,” stated the regulator, who declined to be named due to the sensitivity of the problem. “It’s crucial for lenders to have better access to more comprehensive and detailed credit data on borrowers.”

CUSTOMER CREDITWORTHINESS

The hottest regulatory attempt would likely dampen the scale and profitability of tech majors’ credit businesses.

Ant runs Zhima Credit which means “Sesame Credit” in English, one of China’s biggest private credit-rating platforms, with proprietary algorithms and methodology that score people and small businesses based on their use of Ant-linked services.

The firm offers limited borrower information to about 100 banks, and takes the so-called “tech service fees” – a 30%-40% cut, on average, of the interest on loans it facilitates, analysts estimated.

Ant’s consumer lending balance stood at 1.7 trillion yuan (approximately $263 billion) as of the end of June, accounting for 21% of all short-term consumer loans issued by Chinese deposit-taking financial institutions, according to its IPO prospectus and PBOC data.

Compared with Ant, rivals Tencent and JD.com run relatively smaller consumer-credit business.

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Tencent’s private lender WeBank has operated consumer-loans unit Weilidai since 2015, which made over 460 million loan drawdowns worth a total of more than 3.7 trillion yuan as of the end of 2019, according to WeBank’s 2019 annual report.

JD.com’s FinTech arm, JD Digits, operates two platforms – Baitiao and Jintiao – which had a combined 70 million annual active users and took in a total of 4.4 billion yuan in technology service fees during the first half of 2020.

Jintiao facilitated consumer loans worth only 261 billion yuan in the same period of last year, as per JD Digits’ prospectus.

The team at Platform Executive hope you have enjoyed this news article. Translation from English to other languages via Google Cloud Translation. Initial reporting via our official content partners at Thomson Reuters. Reporting by Julie Zhu. Additional reporting by Cheng Leng, Yingzhi Yang and Zhang Yan in Beijing. Editing by Sumeet Chatterjee, Gerry Doyle and Susan Fenton.

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