Unlike traditional banks which could take days to approve loan applications, Jack Ma’s online bank usually takes a few minutes. At Jack Ma’s MYbank operating in China, borrowers only need a few taps on their smartphones to receive cash almost instantly, if they are approved. The whole process takes three minutes and involves zero human bankers. Using real-time payments data and a risk-management system, Ma’s four-year-old MYbank has dished out 2 trillion yuan (S$398 billion) in loans to nearly 16 million small companies.
Small and medium enterprises are really the boiler room of the economy, said Keith Pogson, a senior executive in charge of banking and capital markets at Ernst & Young LLP in Hong Kong. It used to be a segment that banks thought was too difficult and too risky. But now they run their model and work out what the risks are so they feel more comfortable, said Pogson.
MYbank and its peers are getting more comfortable with smaller borrowers previously shunned by traditional banks because of their ability to analyze stacks of data from payment systems, social media, and other sources. The default rate at MYbank is only about one percent.
One unique 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 misbehaving ones.
Another big advantage that lenders have in China, is the relaxed stance towards privacy versus other jurisdictions; lenders or app developers can get data of borrowers much more easily. Hence, big payments provider such as the one operated by Ma’s Ant Financial, the biggest shareholder of MYbank, can get their hands on huge reams of personal data.
Once authorizations from borrowers are obtained, MYbank analyses real-time transactions to gain insights into creditworthiness. For example, a drop in customer payments at a retailer’s flagship store might be an early indicator that the company’s prospects are deteriorating.
As a result, the loan approval rate at MYbank is four times higher than at traditional lenders, which typically reject 80 percent of small-business loan requests and take at least 30 days to process applications, according to MYbank president Jin Xiaolong. The Hangzhou-based firm’s operating cost per loan is about three yuan, versus 2,000 yuan at traditional rivals.
MYbank, which earned 670 million yuan last year, is far from the only lender using technology to boost small-business lending. Units of Tencent Holdings and Ping An Insurance Group both have similar offerings, while state-owned China Construction Bank Corp is dramatically ramping up its presence in the space.