Bloomberg reports on Jack Ma’s loan machine. The highlights: Loans take three minutes; bankers are not part of the process.
- Jack Ma’s online bank is leading a quiet revolution in the way China lends to small businesses, taking aim at a credit bottleneck that has held back Asia’s largest economy for decades.
No one disputes the magnitude of the Chinese market. What is striking is the speed-to-market. QR codes are now old hat in this market. Now, mundane consumer loans become exciting.
- Using real-time payments data and a risk-management system that analyzes more than 3,000 variables, Ma’s four-year-old MYbank has lent 2 trillion yuan ($290 billion) to nearly 16 million small companies.
- Borrowers apply with a few taps on a smartphone and receive cash almost instantly if they’re approved.
- The whole process takes three minutes and involves zero human bankers. The default rate so far: about 1%.
Paper documents and loan officers become a thing of the past.
- As MYbank and its peers crunch reams of new data from payment systems, social media, and other sources, they’re growing more comfortable with smaller borrowers that they previously shunned in favor of state-owned giants.
- China is quickly becoming a world leader in the use of big data and artificial intelligence technology to make loans,
Scoring is essential in credit. The U.S. market relies on scoring credit and risk. But, umbrellas?
- One uniquely Chinese source of information for banks is the controversial social credit system, which is being tested in cities across the country as a way to reward good deeds and punish misbehavior.
- In one potential scenario cited by MYbank President Jin Xiaolong in a recent interview, a small-business owner whose social credit score dropped because he failed to return a borrowed umbrella would find it harder to get a loan.
Here are a few takeaways. This is not a state-sponsored effort, as was Union Pay. It is big, but nimble, business in action. I’m not too convinced about the social aspects of scoring and prefer hard facts as we see in the Western hemisphere. But here is a good opportunity to see if it holds water.
And, on the umbrella attribute, I have to say I am guilty of borrowing a friend’s garden tool and not returning it promptly. That doesn’t make me a bad guy. When I mentioned to him a few months ago, he said, “no problem, hang on to it. If I need it back, I will ask you. For now, I don’t need it.”
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group