More than 60 million payments for purchases on Alibaba’s Nov. 11 Shopping Day were made through Huabei (or Ant Check Later), the online personal line of credit available on Alibaba’s Alipay, representing 8.5% of the total payments Alipay processed on the day.
To encourage users to pay with them during the shopping festival, Huabei announced in advance that they would raise credit limits, offer no-interest installment loans for some one million items on Alibaba’s Tmall marketplace, and distribute some RMB50 million (roughly US$8M) cash in the form of digital Hongbao (“lucky money”) . (source in Chinese)
All users of Alipay, the online payment service that has been supporting Alibaba’s marketplaces for more than a decade, can sign up to Huabei with just a few clicks.
Unveiled by Ant Financial, Alipay’s parent and Alibaba’s finance arm, in late 2014 and officially launched in April 2015, Huabei claimed to have had 10 million users and signed up over 90% vendors on Alibaba’s Taobao and Tmall platforms within 20 days of its official launch. (source in Chinese)
Similar to Paypal Credit, Huabei not only supports purchases on Alibaba’s marketplaces but also a wide range of third-party businesses, including online retailers such as Amazon China, online stores including Xiaomi’s and DJI’s, deals apps Dianping and Meituan, food delivery app Ele.me, online video site Youku-Tudou, and reading apps such as iReader. It had had more than 40 third-party businesses on board as of August 2015.
Like credit card providers, Huabei has also created loyalty programs and other offerings to engage users. Huabei currently doesn’t support sending money.
But the major difference from Paypay Credit or the conventional credit card providers is Huabei loans are from a small loan subsidiary of Ant Financial, and credit limits are generated automatically by Sesame, the in-house developed credit scoring system which is based on users’ personal and purchase data Alibaba has been collecting for years.
Plastic credit cards have never been popular in China, and they may never be given the newly emerged online consumer credit offerings that have been widely available in China since 2014, especially those provided by big Chinese tech companies.
Tech companies have made credit lines very convenient for consumers to sign up and use for purchases. They’ve already had online infrastructure on top of which new financial services can be relatively easily added and huge numbers of users to convert.
Online credit payment offerings also currently charge much lower fees than traditional financial institutions or would even waive interest charges for specific promotional events.
Tech companies can afford to do so because their technology-enabled systems are able to reduce operating costs while they accumulate valuable user data.
Chinese authorities began to issue licenses for consumer credit rating operations at the end of last year. Social networking giant Tencent and Alibaba were within the first batch to be approved. Other tech companies including Baidu and JD.com have stepped up to join the industry (Chinese report).
Of the big Chinese tech companies, online retailer JD.com and Tencent also want to build a full-fledged online consumer credit service like Alibaba’s.
JD.com’s Baitiao, a credit payment service rolled out in early 2014 that supports purchases on JD online store and has partnered with services ranging from apartment rental to travel, also launched campaigns during the Nov.11 Shopping Day. It saw an eight-fold increase in the number of users after the shopping festival. (source in Chinese)
Baitiao recently issued this “digital credit card” asset-backed securities. Earlier in June it announced to establish a joint venture with ZestFinance, a US-based developer of big data underwriting models, to provide credit risk evaluation services, based on consumer data generated on JD’s e-commerce platform, to Chinese companies.
Weilidai (“micro-particle loans”) is Tencent’s online small loan service developed by WeBank, the Tencent-backed online-only private bank which provides a variety of financial products including small loans.
It’s now open to selected users of Mobile QQ and WeChat, Tencent’s messaging apps being used by almost all Chinese users on a daily basis. Tencent’s credit rating system is based on data generated through its social platforms where users communicate with their contacts, consume digital contents and more recently purchase physical goods or services.
Facebook clone Renren, having struggling with user expansion and revenue growth, has shifted focus to college student-targeted financial services. The company has invested a number of internet-based financial product developers in the US and China. In late 2014 it launched Renren Fenqi which offers college student-targeted personal installment loans. It had covered 2,000 universities and colleges in 129 cities as of December 2014, according to the company.
Sina was actually one of the earliest that unveiled a credit payment service Yingyongbao together with Zhong An, the online insurance company co-established by Alibaba, Tencent and insurer Ping An in late 2013. Sina’s only allows small amounts that can only be enough for purchasing virtual items in games or other services on Sina platform.
Baidu announced they will establish an online bank with CITIC earlier this week to offer online financial services including consumer credit.
It is expected that more and more consumer spending in China, especially spending by the younger generation, will be through these online credit options. We’ve seen an increasing number of payments are made through mobile payment services such as Alipay and WeChat, which are owned by Alibaba’s finance arm and Tencent, respectively. As users are getting more used to making payments with them, it is believed the future consumer credit market in China will largely dominated by them.
image credit: Ant Financial