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Using real-time payment data and a risk management system that badyzes more than 3,000 variables, MYbank, a four-year-old loaner, lent 2,000 billion yuan ($ 290 billion) to nearly $ 16 million. small enterprises. Borrowers apply in a few clicks on a smartphone and receive money almost instantly if they are approved. The whole process takes three minutes and involves zero human banker. The default rate up to now: about 1%.
The financial technology boom that has made China the world's largest market for electronic payments is now changing how banks interact with the companies that account for most of the country's economic growth. While MYbank and its peers are processing a host of new data from payment systems, social media and other sources, they are becoming more comfortable with the small borrowers they had previously shunned. favor of giants belonging to the state.
For the Chinese economy, which has reached $ 13 trillion and has experienced the strongest growth since at least 1992, last quarter, the implications could be profound. Non-state enterprises – mostly small businesses – account for about 60% of growth, employ 80% of workers, and have been disproportionately squeezed by more than two years of government crackdown on fictitious lenders.
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"Small and medium-sized businesses are really the boiler room of the economy," said Keith Pogson, senior partner in banking and capital markets at Ernst & Young LLP in Hong Kong. "It was a segment that banks thought was too difficult and too risky. But now they run their model and determine the risks so that they feel more comfortable. "
According to Cliff Sheng, co-director of financial services for Greater China's consulting firm Oliver Wyman, China is becoming a world leader in the use of big data technology and technology. artificial intelligence to grant loans. Among the country's key benefits is a more relaxed approach to privacy than many other jurisdictions.
"Our legal framework and regulatory environment, which raise less privacy concerns, facilitate the generation of a tremendous amount of data and thus provide an unprecedented benchmark," Sheng said.
The government-administered social credit system, which is currently being tested in different cities across the country, is an exclusively Chinese source of information for banks. This system is intended to reward good deeds and punish bad behavior. In a potential scenario cited by MYbank president, Jin Xiaolong, in a recent interview, a small business owner whose social credit score had dropped because he had not surrendered a borrowed umbrella would have more difficulty getting a loan.
But the greatest wealth of data could come from payment providers such as the one operated by Ma's Ant Financial, the largest shareholder of MYbank. After obtaining authorization from borrowers, MYbank badyzes transactions in real time to better understand creditworthiness. For example, a decline in customer payments in a retailer's flagship store could be an early indicator of the deterioration in the company's outlook – and its debt repayment capacity -.
The result of more information is a loan approval rate at MYbank four times higher than at traditional lenders, who typically reject 80% of small business loan applications and take at least 30 days to deal with applications, according to Jin, who plans to double the list of MYbank borrowers in three years. He added that the operating cost per loan of the Hangzhou-based company was about 3 yuan, compared to 2,000 yuan for its traditional competitors.
MYbank, which gained 670 million yuan last year, is far from the only lender to use technology to boost small business lending. The shares of Tencent Holdings Ltd. and Ping An Insurance Group offer similar offers, while the public company China Construction Bank Corp. significantly strengthens its presence in the sector.
The second lender in the country unveiled in September a mobile application capable of processing loan applications for nearly 5 million yuan in two minutes. Construction Bank increased its small business loans by 51% last year, more than twice as fast as the sector. The bank charges an average interest rate of 5.3% for one-year loans, which is slightly higher than the key rate of 4.35%, and indicates that the defaults have remained at a minimum of 0.3%.
"It's a profitable business as long as you can control the risks," said Zhang Gengsheng, vice president of Construction Bank in Beijing. "We had huge losses in the past with a bad debt ratio of 8%. But we are back in the game. "
While controlling for defects may be more difficult due to the slowdown in the Chinese economy, there is every reason to believe that small business loans will continue to grow. In February, the banking regulator called on public lenders to increase small business credit by at least 30% this year. About two-thirds of the country's 80 million small businesses did not have access to loans in 2018, according to China's National Finance and Development Institution.
For Zeng Ping'en, who runs a scooter shop in Hangzhou and has annual sales of around 1.2 million yuan, the MYbank credit application has changed the game. After allowing the bank to access his store's transaction data, Zeng was able to borrow small loans to cover its short-term cash requirements. It pays an annualized interest rate of about 15%.
"It was unimaginable a few years ago, when no bank approved my request," Zeng said. "Now I can borrow whenever I need it."
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