Just about two years ago, Ant Financial announced it was launching its own consumer credit scoring model: Sesame Credit.
It was a big deal. Sesame Credit was designed to leverage “big data” technology and customer behavior analytics to help make credit more available to millions of new and emerging middle class Chinese consumers. At the time of its launch, Sesame Credit was a first-of-its-kind business.
“Sesame Credit is focused on those who may have little credit history at traditional credit agencies,” said Yu Wujie, chief data scientist of Sesame Credit, at the time of the launch. “They may have never obtained bank loans or applied for credit cards. However, they might be active internet users who shop online a lot, ePay their utility bills on time, have a stable residential status and have been using their mobile phone numbers for a long time. We will take these and other factors into consideration when assessing consumers’ creditworthiness.”
The goal, Ant Financial’s COO Eric Jing noted at the time, was to change the way “everyday commerce can and does flow” for many Chinese consumers.
Flash forward two years, and everyday commerce can and does flow very differently now than it did back then. The great cashless conversion — long speculated about all over the world — has more or less actually happened in China, as urban consumers are eschewing cash and leap-frogging over credit cards to mobile-based payment methods.
Two methods in particular stand out: Ant Financial’s Alipay and Tencent’s WeChat Pay. These two services collectively own more than 90 percent of China’s mobile payment market and currently find themselves locked in an extremely tight and ongoing battle to be the dominant digital commerce and finance player in the country.
That competition has opened up a new front, with Tencent’s news last week that it plans to launch a credit scoring model all its own to rival Alibaba’s.
A New Take on Social Credit
Tencent’s social credit bears more than a passing resemblance to Alibaba’s system — and most other credit ratings schemes with which one is likely to be familiar. Users get a number rating between 350 and 850 that indicates their creditworthiness. Like Ant Financial’s model, that score is generated by looking at five main areas. The categories that the score is based off of is also similar: Both firms look at a consumer’s ability to pay off debts, their past credit performance, social connections and behavior. Ant Financial has a category for “personal information,” while Tencent’s new system has a “safety index” that, as of yet, has not been defined.
Currently, the system is in beta testing, and last week the pool of testers got notably larger: They were given access to the service on QQ, Tencent’s mobile chat app.
Tencent did not offer specific guidance about how the scores are calculated or how individual categories are weighted, although the company did note the system is intended to help consumers have a clearer picture of their financial standings “and make it easier and more straightforward for customers to get an all-in-one access point for their financial health.”
To access the system, users must input their names and Chinese ID numbers to reveal their scores.
An Open Market — And Concerns
The incentive to create a scaled credit scoring scheme in China is huge, as there is not a national FICO equivalent in place for consumers; official credit scoring is a service for large businesses.
Filling that consumer need creates a host of synergistic marketing opportunities, particularly for payments firms like Ant Financial and Tencent, as the service provides both a draw to the platform and an opportunity to increase usership. Ant Financial has partnered with a host of third-party services to encourage consumers to use the credit scoring system by offering deposit waivers on things like bike-sharing (specifically an Ofo Bike) and hotel room rentals, among other perks.
And while all of this seems to be to the consumer’s benefit — not to mention in line with official government requests from Beijing that local governments and private companies develop credit scoring models — there are concerns brewing that these systems might be a tool for state control and surveillance as they are further developed.
Both Tencent and Ant Financial’s efforts in this arena stem from government permissions granted two years ago to launch social credit scoring systems. The fact that this has been an initiative driven by the Chinese Communist Party has led to concerns that an Orwellian system (link is in Chinese) could be used to lock consumers out of access to goods and services.
Even those with concerns not quite so sharply drawn have noted that most, if not all, of the data will come from social media (WeChat and QQ have 938 million and 861 million users, respectively). That is a limiting prism through which to view customers, according to some critics.
The main concern is that Tencent may have ceded too large a lead in the race to Ant Financial, whose Sesame Credit has had 2.5 years to gain ground in the marketplace, particularly since Alibaba is the bigger player — with 53.7 percent of China’s mobile payments market to Tencent’s 39.5 percent.
But Tencent, whose payments services have until now been largely limited to small transactions in convenience stores and peer-to-peer lending, has spent much of the last 12 months upping the level of its game and has signed up many new retailers to its payments platform, including Starbucks.
Matthew Brennan, co-founder of tech consultancy China Channel, says the credit scoring play is the next natural move if Tencent wants to continue to bring the competition to Ant Financial and its leadership position.
“Tencent obviously wants to change that, and they need to build up infrastructure to compete with Alipay’s more mature offering,” he said. “Credit scoring is an essential part of that.”
What’s next? In the Chinese mobile payments market, it’s probably safe to assume that almost anything we could imagine might be next. We’ll keep you posted.