#fintech has revolutionized #lending

"Lending done the traditional way is balance sheet-based and implies a direct relationship. However, limitations such as complex underwriting, bureaucratic processes, inflexibility and a lack of customization have long made the case for alternatives.

The rise of platforms has changed everything.

China's SuperApps have led the way and although the authorities have over the past years cracked down on the model, it's worth having a look.

Ant Financial's lending arm - called Credittech - contributed at its peak in 2020 almost 40% of Ant's revenues. The model ran on minimal credit-risk taking with 98% of lending either securitized or underwritten by (100) partner banks.

Credittech consisted of 3 business lines:

1. Huabei (translated Spend)

• Small-ticket consumer credit aimed at daily expenses

• Launched in 2014 as a virtual credit card

• Main target group: young Chinese with consumption potential but limited credit history

• Instant credit underwriting based on platform data

• In essence, a Chinese BNPL version with two variations: 1) an interest-free option for up to 40 days repayment after purchase 2) monthly instalments between 3 and 12 months

2. Jiebei (translated Borrow)

• Launched one year after Huabei (2015), targeting larger tickets

• Short-term, consumer unsecured lending

• Requirement for previous credit history with either Huabei or the Ant platform

• Instant credit underwriting and disbursement to the customers' Alipay account (or to connected cards)

• Repayment via 3-12 month installments

3. Mybank (MY is short for mayi, which translates as Ant):

• An Ant Financial digital only bank targeting small businesses

• Focus on servicing large volumes of small-ticket loans via #technology: big data, automation, standardization, and Artificial Intelligence (AI)

• Data-driven underwriting (assessment of more than 3,000 variables)

• Due to the lack of credit history #data or collateral the bulk of the credit decision is made based on repayment data from e-commerce platforms, online customer profiles, smartphone payments and other available records (local government, insurance)

• 3-1-0 lending model: borrowers can complete their online loan application in 3 minutes, obtain approval in 1 second, with 0 human interactions.

• Profitable business model via high-approval rates, low defaults rates (∼1%) and lower operational costs

• In 2020 MYbank accounted for 50% of the SME market in China, with 78% being first-time borrowers and 40% female-run SMEs.

Technology, the abundance of data, access to both sellers and buyers and market size and leverage, make platform models uniquely positioned to cut the lending Gordian Knot."

Author

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