Caixin
Mar 02, 2015 06:06 PM

Ant Financial Subsidiary Starts Offering Individual Credit Scores

(Beijing) – A subsidiary of a financial services company related to Alibaba Group Holding Ltd. has started offering a credit rating service after it received the central bank's approval early that month to commercialize the collection and analysis of personal credit data.

Sesame Credit Management Co., a subsidiary of Alibaba-linked Ant Financial Services Group, was one of the eight companies the central bank chose to run individual credit rating services that had been provided only by the regulator. It gave the companies six months from January to prepare for business and will decide whether or not to give them a license based on their performance.

Sesame said the service it has been offering since January 28 is for testing purposes.

Users of Alipay, the popular online payment tool owned by Ant Financial, can get a glimpse of their credit level by activating a feature in Alipay's mobile application.

The service rates a person's credit worthiness on a scale of 350 to 950 points. A higher score means a better credit history, which can make borrowing easier and carries added benefits. Sesame says those include exemption from cash deposits at hotels and car rental outlets.

Data used to calculate the scores range from formal loan records that all banks rely on to somewhat unusual types of information, such as a person's hobbies and whether he or she has a financially irresponsible friend.

"If everyone around a person has good credit, the chances will be low he will default on a loan," said Deng Yiming, director of Sesame's business development. The evaluation concerned only people who have had money transfers with each other and did not include social networking activities, he said.

Sesame also factors a person's shopping habits and lifestyle into a credit score. "Someone who plays video games for 10 hours a day, for example, would be considered an idle person, and someone who frequently buys diapers would be considered as probably a parent, who on balance is more likely to have a sense of responsibility," said Li Yingyun, the firm's technology director.

Gathering these types of data allows Sesame to build a personal credit history for people who have largely been left out by banks' traditional credit rating methods, especially students, low-income workers and those who have never borrowed from a bank, Deng said.

Critics say is no proof that these methods effectively measure a person's willingness and capability to repay a loan.

People who use Alipay to repay credit card loans, for example, tend to have a better credit score than those who do not. Critics say this ignores the borrowers' overall debt conditions and may lead to faulty credit scores.

Sesame also evaluates a person's credit based on whether he or she has overdue utility bills, an approach the central bank has struggled with since 2006. Experts say the biggest obstacle is it is hard to pin down who actually owes the bill.

Deng said the rating system has many flaws and it is still being tested. He said only 30 to 40 percent of the data used by the system comes from Alipay and Alibaba's shopping websites. The remainder is from public service providers and companies that cooperate with Alibaba.

Sesame convinces people to activate the credit rating function in the Alipay app by promising that those who have a high score will have privileges ranging from easier access to lower-interest loans to a better profile page on dating websites and exemption from some security deposits.

A person with a score of 600 and higher can rent cars from Hong Kong-listed China Auto Rental Holdings Inc. without leaving a deposit as long as the rental amount is under 5,000 yuan. The firm said more than 60,000 people have had their deposits waived in the first three days after the service was launched.

Zhang Yue, an analyst from Boston Consulting Group, said there was no evidence that people with scores of at least 600 are less likely to default on loans, but it shows how the credit rating may be useful to consumers.

Sesame has also teamed up with several peer-to-peer lending website companies. One of them, Mobile Loans, promises that people with a Sesame credit rating of more than 600 can borrow more through the firm's service and loan requests will be processed much faster than others.

Sesame wants to cooperate with banks too, but negotiations have not gone well, sources close to the situation said. Banks lack incentives to use Sesame's data because they already have a mature system for evaluating loan risk based on credit information held by the central bank, a banker said.

Some banks are also concerned about competition because they do not want to share data with a potential rival, another banker said. Ant Financial has a small-loan subsidiary and is about to set up a bank. Sharing data with Sesame would be handing over confidential client information to a competitor, he said.

(Rewritten by Wang Yuqian)

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