Ant Group Forced To Spearhead China’s New National Credit-Scoring System

Beijing has apparently figured out a way for Alibaba’s Ant Group to help compensate for founder Jack Ma’s public criticisms: the firm is being forced to partner with a bevy of state-controlled enterprises to develop China’s first credit-scoring system (apparently, Beijing prioritized the rollout of its “social credit” system over the more traditional version).

For decades now, Chinese financial institutions have been pining for a national system of credit scoring like the FICO system used in the US, despite the fact that Chinese consumers almost exclusively rely on mobile and electronic payments.

According to WSJ, the new entity, which could be established as soon as Q3 of this year, could result in Ant ceding some control over the voluminous data it has on the financial habits of Chinese citizens. More than one billion Chinese use Ant’s Alipay app to spend, borrow or invest their money. All this data collected by Ant is the company’s secret weapon. But instead of Ant hoarding the data for itself, talks are ongoing in which the Jack Ma-controlled Ant will is launching a joint venture with a state-owned company. The resulting firm would be licensed as a credit-scoring company.

Discussions about how these credit scores would fit into China’s national database of consumer information have continued.

The new venture with state-backed investors would override Ant’s previous attempts to spearhead a national credit-scoring system under its own brand, Zhima Credit. Ant started the brand six years ago, and once had ambitious plans of using Zhima to provide credit scores for Chinese citizens – but those hopes were dashed, and the division was instead relegated to being a loyalty program for Alipay customers.

While the PBOC already runs a Credit Reference Center that collects credit information about individuals and companies from banks and other financial institutions, it lacks data on many consumers who either don’t qualify for traditional bank loans or are “unbanked” for whatever reason. Fortunately, Ant, whose Alipay platform handled the equivalent of more than $17 trillion worth of transactions and originated loans to more than one-third of China’s population in the year to June 2020, has collected troves of consumer data for years.

Back in 2016, Alibaba was investing heavily in Zhima to try and make the division China’s premier credit-scoring database. The firm had been invited by the PBOC (along with a handful of rival firms) to try and create its own credit bureau. Ant hired people from Equifax to build the risk assessment and scoring system.

The company expected the PBOC to grant it a license to run the credit-scoring system after it had finished building out the system connecting lenders across the country to pool data on potential borrowers. But that never happened.

Instead, regulators cracked down on peer-to-peer lending platforms after some turned out to lack proper risk controls, or be outright scams. The PBOC also decided it no longer wanted a nationwide credit-scoring system run. The PBOC later tried to revive the credit scoring system, but found private firms to be less-than-willing partners.

With its ambitions curtailed, Zhima soon began to fade. Ant instead used the “Zhima scores” as the basis for a loyalty program for Alipay users. People with high scores could enjoy perks such as deposit-free hotel bookings and rentals of cars, bicycles and mobile power banks.

While Zhima likely won’t be a part of the new state-controlled credit-scoring system, WSJ said the state-controlled enterprises that are partnering with Ant to create the new system will likely benefit from all Zhima’s data.