Chinese Microlending Fintech May Make Min Luo a Billionaire

With a net worth of at least $1.2 billion, Min Luo may be the latest Chinese billionaire to have amassed his wealth from within the fintech industry, according to Bloomberg.

The founder and chief executive officer of Chinese micro-lending platform Qudian Inc., Luo launched his fintech business only three years ago. Since then, Qudian has come to be valued at a minimum of $6.3 billion, a valuation of the company’s outstanding shares. This comes after a $825 million initial public offering selling 37.5 million American Depository Share(s), which was announced recently. Luo owns about a fifth of the multi-billion-dollar fintech operation, which, in the first half of 2017, proved to be the leading provider of consumer credit online.

During that period, Qudian handled the transactions of about 7 million users, whose transactions totaled approximately 38.2 billion yuan, or about $5.6 billion. Almost all of the company’s loans are made via mobile devices, and it incorporates artificial intelligence and machine learning into its operations. In this way, Qudian aims to provide services to the millions of Chinese youths who lack credit and are underserved by traditional financial institutions.

Ant Financial, an affiliate of Alibaba, the world’s most valuable fintech company, is set to hold an 11.4% share in Qudian after the offering.

Earlier this year, Qudian submitted a paper to the Securities and Exchange Commission which outlined its model of assessing consumer credit, and non-Chinese observers may be interested to know that the company’s credit assessment model incorporates not only financial data, but also “social and shopping behavioral data… in addition to characteristic metrics such as locations and demographics” in order to assess their consumers’ credit profiles. In this way, the company seeks not only to assess a consumer’s ability to pay, but also their “willingness to do so.”

For observers who are familiar with the “social credit” system that other major Chinese companies, like Tencent and Alibaba, have been testing, this paper may raise a few questions. Specifically: how closely does the Qudian credit scoring model resemble those of Tencent and Alibaba?

For observers unfamiliar with China’s “social credit” system, it essentially encompasses the use of non-financial data, like social connections, to help assess a consumer’s likelihood of repaying a loan. For Tencent, this meant launching a beta testing of Tencent Credit, which required users to “input their real names and Chinese ID numbers to reveal their scores,” which is then broken down into five sections, including “social connections” and “security.”

Alibaba has tested a similar system.

No detailed description regarding what sort of data the terms “social connections” and “security” actually encompass, and exactly how that information is used to create an aggregate credit score, is available at this time. However, it has been reported that “much, if not most, of [the data for Tencent Credit] will come from social media,” including chat apps like WeChat and QQ, which respectively boast of 938 million and 861 million users.

The holding of personal information of consumers by large institutions like Alibaba and Tencent may not appeal to many American and European consumers, who might not like the idea of their private messages being visible to others. However, this is the route that some companies are taking to tackle the issue of how to bring credit to the previously uncredited and the under-credited.

According to Quartz, there is also an undeniably political element to the Chinese dedication to the “social credit” system, in that Tencent and Alibaba were two of a small list of companies that were granted government permission in 2015 to test such credit scoring programs.

Josh Horwitz, the correspondent who wrote the Quartz story on China’s “social credit” system back in August expressed the situation quite plainly: “They know who our friends are, what we read, what games we play, what we chat about privately, and what we post on public social feeds.”

And it all goes into determining a consumer’s credit score.

Whether or not Qudian’s model of assigning credit to consumers follows this social model or not, and if so, then to what extent, is currently unknown, though the document the fintech submitted to the Securities and Exchange Commission does state that they are in a strategic partnership with Alipay.

Read more at: Bloomberg, Quartz, Seeking Alpha, and the SEC Archives.

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