One of the largest challenges within the alternative lending space is risk mitigation. Many small businesses turn to alternative finance because they are deemed too risky by mainstream banks to secure a loan. And while alt-lenders can provide much-needed working capital, they must provide a way to assure their partnered lenders that their investments are secure.
The credit score has been a crucial tool for many lenders assessing the risk of the SME borrowers. Today, the tool is now a key aspect of China’s rising alt-lending market, reports said.
FICO, one of the largest credit report providers, recently revealed plans to invest in China’s P2P lending space. Now, its rival is making its own impact in the nation.
Reports published Friday (June 26) revealed that U.S.-based credit score service ZestFinance has partnered with another Chinese eCommerce platform JD.com to provide credit assessment services to JD.com customers, including businesses.
The partnership comes soon after JD.com rival Alibaba revealed its own plans to partner with Sesame Credit through its financing unit Ant Financial Services. That collaboration similarly provides a credit risk assessment and score to Alibaba individuals and businesses.
According to reports, generating a credit score in China is difficult due to a lack of transparency and publicly available data in the space – financial institutions are often reluctant to share data and customer information with each other. But as the nation strengthens its support of the alternative lending market, and as eCommerce players boost their small business financing efforts, a reliable way to assess creditworthiness of businesses will be in high demand.
JD.com said that its deal with ZestFinance will aim to provide as many credit scores as there are customers on the site – more than 100 million, according to reports. ZestFinance CEO Douglas Merrill told reporters that while JD.com will be its first client, the partnership will soon look to expand to other customers to incorporate P2P lending platforms.