Jack Ma’s online banking changes the SME lending space in China

Unlike traditional banks which can take days to approve loan applications, Jack Ma’s online banking typically takes a few minutes.

At Jack Ma’s MYbank operating in China, borrowers only need a few clicks on their smartphone to receive money almost instantly, if approved. The whole process takes three minutes and involves no human bankers. Using real-time payment data and a risk management system, four-year-old MYbank in Ma has provided 2,000 billion yuan (S $ 398 billion) in loans to nearly 16 million small businesses.

Small and medium-sized businesses are the real powerhouse of the economy, said Keith pogson, senior executive in charge of banking and capital markets at Ernst & Young LLP in Hong Kong. “Before, it was a segment that the banks considered too difficult and too risky. But now they run their model and figure out what the risks are so that they feel more comfortable, “said Pogson, quoted in”Bloomberg“(behind the paywall).

Tap the social credit system

MYbank and its peers are increasingly comfortable with small borrowers previously shunned by traditional banks due to their ability to analyze stacks of data from payments systems, social media, and other sources. The default rate at MYbank is only around one percent.

A single source of information for lenders in China – the government administered social credit system. It is being tested in cities across the country as a way to reward good borrowers and punish those who behave badly.

Great data treasures

Another big advantage of lenders in China is the relaxed stance on confidentiality compared to other jurisdictions; lenders or application developers can get borrower data much more easily. As a result, large payment providers such as the one operated by Ma’s Ant Financial, MYbank’s largest shareholder, can get their hands on huge amounts of personal data.

Once borrower authorizations have been obtained, MYbank analyzes transactions in real time to better understand creditworthiness. For example, a drop in customer payments at a retailer’s flagship store can be an early indicator of a deteriorating business outlook.

Much higher approval rates

As a result, the loan approval rate at MYbank is four times higher than with traditional lenders, which typically reject 80% of small business loan applications and take at least 30 days to process, according to the chairman of the bank. MYbank. Jin xiaolong. The Hangzhou-based company’s operating cost per loan is around three yuan, compared to 2,000 yuan among traditional competitors.

MYbank, which earned 670 million yuan last year, is far from the only lender to use technology to boost lending to small businesses. Units of Tencent Holdings and Ping An Insurance Group both have similar offerings, while state-owned China Construction Bank Corp is dramatically increasing its presence in the space.

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David A. Albanese