Ant Financial’s New Credit Agency is the First of Its Kind in China

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Ant Financial Services Group, the parent company of Alipay, China’s largest e-payments provider, has established the first credit agency in the country to use a system based on online and offline data to generate individual credit scores for consumers and small business owners.

Called Sesame Credit, the new agency leverages big-data technology and customer behavior analytics to assess creditworthiness, which is expected to make it easier for companies to extend credit to millions of Chinese consumers, according to Sesame Credit officials. Credit bureaus and ratings agencies provide lenders, merchants and other companies with reliable means of determining the ability of customers to pay their bills, allowing them offer car loans, mobile-phone service contracts and a host of other types of consumer installment credit.

Sesame Credit officials said their goal is to make consumer loans and other credit services more widely available in China, which has an underdeveloped consumer-finance industry compared with many Western countries. At the start of 2014, 320 million Chinese citizens–less than one quarter of China’s population–had credit records in the People’s Bank of China credit reference center, Zhang Jianhua, head of the PBOC’s Hangzhou branch, recently told Caixin magazine. In the U.S., 85% of consumers have credit ratings.

“Sesame Credit is focused on those who may have little credit history at traditional credit agencies,” said Yu Wujie, Sesame Credit chief data scientist, in a prepared statement. “They may have never obtained bank loans or applied for credit cards.  However, they might be active Internet users who shop online a lot, e-pay 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.”

To establish credit scores, Sesame Credit is combining traditional information sources for assessing creditworthiness such as public records with vast amounts of online data from Alibaba Group, an affiliate of Ant Financial.

Alibaba’s e-commerce ecosystem provides Sesame Credit with data from more than 300 million real-name registered users and 37 million small businesses that buy and sell on Alibaba Group marketplaces including Taobao Marketplace and Tmall.com. Payment histories are also available from Alipay, a subsidiary of Ant Financial.

In addition, Sesame Credit is working with public agencies, financial institutions, and merchants to obtain more data, officials said. Information will be processed using big-data analytics, complex software that can evaluate different kinds of data to identify patterns and make predictions such as the likelihood that individuals will pay their debts.

“By leveraging the big data we have and the state-of-art technology we deploy, we believe the debut of Sesame Credit will not only enable credit providers to make holistic and accurate decisions, but will also empower merchants to provide more credit-related services,” said Eric Jing, Ant Financial’s chief operating officer. “This will make their everyday life easier and help spur the development of a healthy economic and social environment,” Jing said in a statement.

Making credit more available to Chinese consumers and small business owners is a primary goal of Sesame Credit, company officials said, adding they expected its service can be applied in many ways, for example landlords can check credit scores online to vet potential tenants and employers can verify backgrounds of jobseekers. Sesame Credit is currently testing the service with some of China’s hotels, which are allowing travelers with top scores to book and stay without paying in advance. The company is also testing with a Chinese online dating site that allows suitors to check their potential dates’ credit scores to make sure they are not meeting sketchy people.

Sesame Credit officials added that user privacy and personal data would be protected. Data is collected only with the knowledge and consent of the individual subjects of the information, and all data is encrypted, officials said. Access to a person’s credit scores can occur only with the subject’s authorization. Consumers will be able to check their credit scores by using Alipay Wallet, Ant Financial’s mobile e-payments app.

The establishment of Sesame Credit adds to Ant Financial’s growing line of Internet-centric financial-service businesses. Officially launched in October, Ant Financial currently operates Alipay; the Alipay Wallet mobile payments app; investment platforms Yu’e Bao and Zhao Cai Bao; and small business lender Ant Credit. The company is also seeking a license to form an Internet bank.