(Chinese Version)

Wang Xiaolei, deputy director of the Credit Reference Center of The People’s Bank of China, defined “credit reporting” as “collecting loan applicants’ past track record with credit from lenders”. Her definition is typical of the academics. Revolutionists, however, denounced such definition and even the “disinterested third-party” policy (collecting only loan applicants’ financial information & collectors having no relations with information collected) as well.

Can credit reporting be based on past records on SNS and online retailers?

During the Bund Summit 2015 on Internet Finance of Shanghai Finance Institute 2015 Conference, held on July 11, Wang Xiaolei, deputy director of Credit Reference Center of The People’s Bank of China, Chen Jian, CEO of Fair Isaac (NYSE: FICO)'s Greater China operation, along with head of four personal credit reporting agencies which are soon going to be licensed, sat down together and had a thorough discussion on the future of Internet finance and credit reporting in China.

“I don’t know exactly what you are referring to when you mentioned ‘credit reporting’,” Wang Xiaolei voiced his doubt during the discussion. Ms. Wang was one of the pioneers who designed the credit reporting system in China and set up the Credit Reference Center of The People’s Bank of China (CCRC). However, she seemed not to be able to catch up with the new development of credit reporting triggered by Internet finance.

Fundamentally, while CCRC, based on personal credit information collected by banks, aimed to establish a public database of credit information for lenders, Internet finance companies coined the concept “big-data credit reporting”, that is, collecting not only loan applicants’ personal finance information, but also their past records on social networking platforms, online retailers, etc., which might seem irrelevant to loan applicants’ credit at first sight.

Moreover, Internet finance companies have broken the “disinterested third-party” policy as well. While traditional credit reporting agencies avoided any relationship with the individual of enterprise assessed and aimed to collect the information from third-parties and for the third parties, Internet finance companies didn’t mind it at all. For example, Tencent assesses loan applicants’ credit based on their record on WeChat and QQ account, and Sesame (“Zhima” in Chinese) evaluates applicants’ credit based on their record on Alibaba.

In this case, not only the credibility of credit reporting becomes dubious, but also people’s other aspects of life might be affected unexpectedly.

Big-data credit reporting=lower credibility?

Many people doubted the credibility of big-data credit reporting.

On January 5, 2015, People’s Bank of China (PBC, the central bank of China) issued the Notice on Make Preparations for Providing Personal Credit Reporting Service, and gave the first eight agencies (including Seasame Credit Reporting, Tencent Credit Reporting, China Chengxin Credit Rating Group, IntelliCredit, Lakala Payment and Credit Data Group) six months to get prepared. Now that six months have already passed, it is expected that soon the first batch of personal credit reporting agencies are going to be licensed.

“No credit reporting agency has carried out a complete and credible Internet credit reporting system so far anywhere in the world,” IntelliCredit’s CEO Li Xuan, with 16-year experience in credit reporting, showed his concern for big-data credit reporting, “No Internet credit reporting system’s KS score has passed 35 yet.” In statistics, the Kolmogorov–Smirnov test (K–S test or KS test) is a nonparametric test of the equality of continuous, one-dimensional probability distributions. The test results vary from 0 to 100, but 35 is the bottom line for a credible credit reporting system.

Internet giants, however, seemed to be confident in such business. 15 days before the summit, JD announced that it would invest in Zestfinance, an American financial services tech startup that uses machine learning and data science to assess credit, and established a joint venture.

“If loan applicants’ past record on online retailers can’t be taken into consideration when assessing their credit, then what kind of information could be? Those who still doubt the credibility of big-data credit reporting are being too conventional,” Yao Naisheng, deputy director of Strategic Development Division of JD Finance, told IT Times.

For Internet finance companies like JD, big-data finance credit reporting, regardless of the huge controversy, is still a promising business. If it is approved one day, huge potentials can be released out there.

Will people find it harder to get a higher credit score on Internet credit reporting platforms?

The current credit reporting system carried out by People’s Bank of China can be very demanding. For fear of possible punishment, some borrowers even borrowed money from loan sharks in order to pay the money back to banks in time.

Big-data credit reporting can also be problematic sometimes. Although the Regulation on the Administration of Credit Investigation Industry forbade collecting personal information without consent, people tend to “consent” easily in order to enjoy such services.

The problem is that the “inaccurate” test result of these credit reporting agencies might affect people’s other aspects of life unexpectedly. For example, a low credit score on Seasame might affect people’s job interviews. To avoid such situations, the United States Congress passed the Fair Credit Re-porting Act in 1970 to regulate the collection, dissemination, and use of consumer information, including consumer credit information.

Big-data credit reporting companies might be conferred huge power in deciding an individual’s credit. In other words, people may find it harder to get a higher credit score. For example, to improve one’s credit score on Seasame, people might be forced to used more Alibaba’s services, and add more friends of good repayment history and higher credit score on Seasame.

Regulators expect Internet finance companies to do what banks are not willing to do

Regulators must have been well aware of the risk of big -data credit reporting, though Wang Xiaolei kept saying on the summit that she still didn't have enough knowledge of the services and products of these eight agencies to make judgments.

For Mrs. Wang, P2P brought about a series of independent credit assessing agencies. She overrated P2P lending, but her definition signaled the high expectations regulators hold towards P2P lending.

The interesting part, however, is that many owners of P2P lending platforms said to IT Times that they would like to get access to the credit reporting system of PBC so as to assess loan applicants credit more comprehensively. Wang Xiaolei confirmed on the summit that many P2P lending companies refused to lend to applicants without the credit report issued by the PBC.

The reason why regulators are tolerant of P2P lending companies is that they want these companies “do what banks are not willing to do”, that is, lending to small and middle-sized enterprises, so that the PBC gets to fill up the credit reporting system with credit records of the rest over 500 million more Chinese.

If big-data credit reporting companies failed to do so, or even sought to grab banks’ market share, regulators will, for sure, give no tolerance any more.

[The article is published and edited with authorization from the author @IT TIMES, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.