While it has been widely known for months that Ant Financial Services Group — Alibaba’s financial arm — has been developing a credit scoring service, the company has now officially started offering the service with the backing of China’s Central Bank.
Sesame is a credit scoring service that works by reviewing user profiles and behavioral data from Alibaba’s marketplaces. Alipay is another venture ran under Ant Financial. The services began in late January, but only for testing purposes, and now are widely available for Alipay users who want to check their credit level through a mobile app. Tencent and Alibaba were both recently approved to join eight other private organizations that plan to launch their own consumer credit rating services in China.
Similar to a credit score in the U.S., Ant Financial ranks “creditworthiness” on a basis of 350-950 points, with the higher score indicating a better credit history. The number is also calculated similar to a credit score in that it takes into account loan records, but what’s unique about this credit rating system is it has a social networking aspect as it takes into account the consumer’s own hobbies or the creditworthiness of a consumer’s social connections, Caixin reported.
“If everyone around a person has good credit, the chances will be low he will default on a loan,” Deng Yiming, director of Sesame’s business development, told Caixin.
Other factors accounted for involve reviewing shopping habits and lifestyle tendencies. What Sesame does is allows consumers who may not qualify for a traditional loan through a bank to have a chance to prove their worthiness through alternative methods. This has been one point of criticism about Sesame’s methodology among the financial industry as there isn’t hard evidence linking these specific factors it uses to a person’s creditworthiness. But Sesame still uses the non-traditional methods.
“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,” Li Yingyun, the firm’s technology director, told Caixin.
To expand this service, Sesame is looking to pair with P2P lending companies to help streamline the loan process for those with better credit ratings. Corporate banks are said to be the next step, but according to Caixin, the deal has not moved forward because “negotiations have not gone well.” The source cited a banker who speculated that most banks aren’t motivated to use Sesame’s data system since they have a more developed process for evaluating loan worthiness.