Jack Ma’s online bank makes a quiet revolution in the way China lends to small businesses. Using real-time payments and a risk management system that analyzes more than 3000 variables, MYbank has granted 2 trillion in four years since its inception. yuan ($ 290 billion) to nearly 16 million small companies.
Borrowers apply with several touches of the smartphone and receive cash almost immediately if they are approved. The whole process takes three minutes and includes zero human bankers. The current percentage of uncollected claims is about 1%.
The boom of financial technology, which turned China into the largest electronic payments market in the world, is now changing the way banks interact with companies that drive the bulk of the country’s economic growth. Since MYbank and its competitors collect data from payment systems, social networks, and other sources, they are becoming more convenient for smaller borrowers.
For the Chinese economy at the rate of 13 trillion. the dollar’s consequences could be deep. Non-state firms — mostly small businesses — account for about 60% of growth and employ 80% of workers.
A unique Chinese source of bank information is the government-run social credit system that has been tested in cities across the country as a way to reward good and punish bad behavior. In a potential scenario, quoted by MYbank President Jin Xiaolun in a recent interview, a small business owner whose social rating has fallen because he has failed to repay his loan, it will be harder to get a loan.
But most information can come from payment providers such as Ant Financial’s Jack Maine, the largest shareholder in MYbank. After obtaining authorization from borrowers, MYbank analyzes real-time transactions to obtain creditworthiness information. For example, the decline in customer payments in a leading retailer’s store may be an early indicator that the company’s prospects — and its ability to repay debt — are worsening.
The result of most data and information is the MYbank loan approval rate, which is four times higher than that of traditional creditors who typically reject 80% of small business credit applications and take at least 30 days to process applications, according to Jin, who plans to double MYbank’s list of borrowers for three years. He says the operating costs of the Hangzhou-based firm are about 3 yuan compared to 2000 yuan of traditional competitors.
MYbank, which last year posted a profit of 670 million yuan, is far from being the only creditor to use technology to boost small business lending. Tencent Holdings Ltd. and Ping An Insurance Group Co. have similar proposals, while the state-owned China Construction Bank Corp. dramatically increases its presence in this niche.
The second-largest lender in the country released a mobile application in September, which can process loan applications for 5 million yuan in two minutes. Building bank has boosted small business lending by 51% last year, which is more than twice as fast as the industry. The Bank charges an average interest rate of 5.3% for annual loans, slightly above the interest rate of 4.35%, and claims that the default is 0.3%.