Alibaba’s Sesame Credit is China’s first credit agency to use a scoring system based on online and offline data

Alibaba Group financial services affiliate launched a credit scoring service by leveraging “big data” technology and consumer behavior analytics to help make credit more easily available to millions of consumers across China on Wednesday. The credit scoring service, called Sesame Credit, will rate both consumer and small businesses.

Alibaba Group Holding Ltd's Finance Arm Unveils Credit Scoring Service

First credit rating agency to use online and offline data

As reported by ValueWalk, earlier this month the People’s Bank of China (PBOC) gave the green light to firms backed by Alibaba, Tencent and six other companies to launch customer credit information services. Among the winners cleared by the central bank were Sesame Credit Management, an arm of Alibaba’s Ant Financial Services Group. Ant Financial is controlled by Alibaba founder Jack Ma. Other names include Tencent Credit Reporting Co and Ping An Insurance Group, as well as five local technology and financial companies: Pengyuan Credit Services, China Chengxin Credit Information, IntelliCredit, Blue Focus, and Yin Zhi Jie.

Since commencing operations in 2014, Ant Financial has been growing rapidly, primarily through targeting smaller businesses and hundreds of millions of consumers who are often underserved by China’s larger banks. Ant Financial offers a bouquet of services, including payment processing, personal banking, wealth management, small business loans, personal credit and insurance.

Alibaba’s Sesame Credit is the first credit agency in China to use a scoring system based on both online and offline data to generate individual credit scores for consumers and small business owners. The ratings will provide lenders, merchants and other companies with a reliable tool for assessing their customers’ creditworthiness. This will provide more consumers access to a host of borrowing services, such as home loans, mobile-phone service contracts, car loans and other types of installment credit.

Huge expectations from internet groups

Thanks to little data being shared among banks, credit ratings in China remain rudimentary. Gabriel Wildau of the Financial Times notes that great expectations surround the entry of internet groups into Chinese financial services, which have long been dominated by stodgy, state-owned behemoths. Tencent’s privately owned, online-only bank, WeBank, was launched this month, while Alibaba’s private bank, Zhejiang Internet Commerce Bank, is expected to commence operations this year.

Banks in China are hampered by a lack of capability to assess credit risk, which prevents expansion of lending to small businesses and consumers. The need for accurate credit assessments is accentuated, as most bank lending in China is collateralized, while small borrowers typically lack sufficient control.

Alibaba’s Sesame Credit will glean data from 300 million individual users and 37 million small businesses that buy and sell on Alibaba platforms, including business-to-business portal Alibaba.com and consumer marketplaces Taobao and Tmall.

Ant Financial says it will supplement data collected from Alibaba sites and Alipay with information from public agencies, financial institutions, and other merchants. Sesame Credit users can check their scores, which range from 350 to 950 points, through Alipay Wallet, a mobile wallet app, or shopping sites that accept Sesame Credit scores.