Jack Ma’s ant in talks to share data with state-owned companies

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HONG KONG — Ant Group Co. is in talks with Chinese state-owned enterprises to set up a credit rating company that will put the fintech giant’s proprietary consumption data under the responsibility of regulators, according to people familiar with the matter.

The new entity, which could be created as early as the third quarter of this year, could cause Ant to cede some control over the big data it has on the financial habits of Chinese citizens. Over a billion people use Ant’s Alipay app to spend, borrow or invest their money, and the information Ant has collected and used has been the secret sauce behind the company’s success in recent years.

Talks between Ant, which is controlled by billionaire Jack Ma, and Chinese state-owned companies are expected to result in the formation of a joint venture that would be licensed as a credit rating company. Ant and regulators have also discussed whether the company should be run and controlled by Ant or by state-owned companies, according to people familiar with the matter.

Regulators are pushing for potential state shareholders to play a larger role in the new entity to have a say in how it works, according to some people familiar with the negotiations. Potential shareholders include a Shanghai-based financial conglomerate. There were also discussions about what kind of data would be collected by the new company and how the credit scores it produces would fit into China’s larger plans to create a database. national, people added.

Discussions are continuing and final decisions have not been made, the people said.

A spokesperson for Ant declined to comment on plans for the credit scoring business. The People’s Bank of China, which is overseeing a larger overhaul of Ant, did not respond to requests for comment.

Ant is controlled by billionaire Jack Ma.


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Agence France-Presse / Getty Images

The new venture with state-backed investors would replace Ant’s previous attempts to run a national credit scoring system under her own brand, Zhima Credit, which she launched six years ago. Ant once had ambitions to use Zhima, formerly known as Sesame Credit, to provide credit scores to most of the Chinese population, but those hopes were dashed, reducing the division to what is essentially a loyalty program for Alipay users.

Despite all of China’s global advances in mobile payments and financial technology, the country did not have a strong national credit scoring system, similar to the US FICO, whose scores are used by many lenders and are based on on the borrowing and repayment history of individuals from a variety of sources.

The PBOC operates a credit reference center that collects credit information about individuals and businesses from banks and other financial institutions. But there is a lack of data on many people who are not eligible for traditional bank loans.

Over the past decade, Ant and other fintech companies have ramped up lending to large parts of the Chinese population, but much of the information they’ve gathered about individuals has been held in their own systems. .

Until recently, Ant had resisted pressure from financial regulators to share its data or feed it into a central repository accessible by other financial institutions, claiming that it did not have the consent of its users to do so.

The roles have now turned, following the cancellation of Ant’s initial public offering and a broader regulatory crackdown on Chinese tech giants. By strengthening its grip on Ant, Beijing is also trying to put an end to what it sees as excessive data collection and lax protection of consumer privacy.

In less than six months, Chinese tech giant Ant went from planning a successful IPO to restructuring in response to pressure from the central bank. While the United States is also targeting big tech, here’s how China is moving faster. Photographic illustration: Sharon Shi

Ant announced in April that it would restructure into a financial holding company overseen by the central bank of China. He pledged to fully regulate his payments, loans, wealth management and other operations, and said he would start a company that would apply for a personal credit reporting license.

Earlier this month, Ant launched a consumer finance company that also has public and private companies as shareholders. This company will change the way Ant finances and grants some of its short-term loans.

Ant, whose Alipay platform processed the equivalent of more than $ 17 trillion in payment transactions and provided loans to more than a third of China’s population through June 2020, has raised numerous consumer data for years.

The company launched Sesame Credit in 2015, then changed the name to Zhima, the Mandarin word for Sesame. Ant said its goal is “to help the hundreds of millions of Chinese consumers and businesses with little or no formal credit history to establish their trustworthiness in a commercial setting.”

Mr. Ma, who founded Alipay’s parent company, Alibaba Group Holding Ltd., had high hopes for the division, whose name was also inspired by the popular tale “Ali Baba and the Forty Thieves.” In it, the magic phrase “Open Sesame” revealed the entrance to a cave where thieves had hidden treasure.

At that time, the PBOC invited eight private companies, including Zhima and Ant’s rival, Tencent Holdings Ltd.

, to pilot their own credit rating systems. This sparked a race for companies to build what they hoped would ultimately be adopted as the nation’s premier credit monitoring database.

Zhima grew aggressively, hiring people from companies like Equifax to create a risk assessment and rating system that could be connected to thousands of financial institutions like banks, credit companies to consumer and online lenders.

Ant aggressively developed Zhima Credit after its launch in 2015, but it is now just a shadow of itself.


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Qilai Shen / Bloomberg News

Zhima’s credit scoring metrics incorporated more than people’s borrowing and payment history into its ratings. He also analyzed alternative data such as online social networks and the purchasing habits of individuals, which are seen as complementary to information on auto loans and mortgage debt.

In early 2016, Mr. Ma made Zhima his first stop on a post-Lunar New Year visit to Ant headquarters in Hangzhou. In a pep talk to staff members, he proclaimed that “Zhima will be adopted into every household,” according to a person who was there.

Inspired, Zhima’s team accelerated the deployment. Between June and September of the same year, he connected with more than 300 non-bank financial institutions such as peer-to-peer lending platforms which were mushrooming across China, according to people familiar with the matter. He also provided his credit scores to dozens of commercial banks and in return some of them provided him with loan data and defaults information, people said.

The industry expected the PBOC to issue credit scoring licenses after the pilot program was completed.

It never happened. In 2017, regulators stepped up the crackdown on peer-to-peer lending platforms after some of them turned out to be scams or lacked proper risk controls.

The PBOC also decided it no longer wanted a nationwide credit scoring system run by private for-profit companies. A central bank official told state media at the time that companies were unwilling to share information and had conflicts of interest as well as a poor understanding of how to proceed with the credit rating.

Instead, the central bank issued a three-year license in early 2018 to a new government-run company called Baihang Credit Scoring. The eight companies that were previously asked to build their own systems were told to halt these efforts and each received an 8% stake in Baihang, with the remaining 36% held by an entity affiliated with the government. They were all asked to provide data to Baihang to help build a national credit rating database.

This was another failure, as some of the companies did not want to provide data that their competitors could benefit from. “There was no way Ant could share all of this with a company in which it only had an 8% stake, so most of the data benefits would potentially go to other companies,” Eswar Prasad said. , a former leader of China. from the International Monetary Fund and professor at Cornell University.

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With his ambitions reduced, Zhima’s relevance began to fade. Ant changed its mission and made it closer to a loyalty program for Alipay users. People with high Zhima scores could enjoy perks like no deposit hotel reservations and rental of cars, bikes and mobile power banks. Zhima’s team has shrunk, becoming a shadow of itself, according to people familiar with the matter.

In January of this year, the central bank issued a draft rule aimed at “strengthening the supervision and management of credit rating firms.” He said these companies would need licenses to operate legally.

Zhima will not be part of the new credit rating company Ant is likely to start with state-owned companies, people familiar with the matter say. The new entity would have access to the same data that Zhima uses, and after its creation, Ant would step down as a shareholder in Baihang, the people added. Baihang’s credit rating license expired in January, according to a regulatory filing. Baihang did not respond to a request for comment.

Ultimately, Ant will have to share some of its consumption data with other institutions because “it’s a matter of public interest,” said He Zhiguo, professor of finance at the University of Chicago.

The headquarters of Ant, where Jack Ma made Zhima his priority for a visit in 2016.


Photo:

Qilai Shen / Bloomberg News

Write to Jing Yang at [email protected] and Xie Yu at [email protected]

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