On January 30, Chinese tech giant Tencent offered the vast customer base of its WeChat social media programme something new. By following an account called "Tencent Credit" and sharing personal details including their name, national ID and phone number, users could receive a credit score from 300 to 850. For those with good scores, there was access to interest-free microloans from Tencent-backed WeBank and deposit-free bike rides from another Tencent investee, Mobike.
But users didn't have long to enjoy the privilege. By late on January 31, the account offered only a message saying: “Hi, thank you for following Tencent Credit. The national public testing, offered over limited time, has now ended; thanks for participation”.
Contacted by FinanceAsia on Tuesday, a Tencent spokesperson shrugged off market rumours and speculation that suggested the withdrawal was a result of regulatory intervention. Instead, the spokesperson proffered that the move was an "efficient" reaction to user feedback already collected after what had been a beta test of the system previously trialled in Guangzhou and Shenzhen.
But the episode does underline a key dilemma for China's emerging tech titans. Building up a comprehensive credit picture of their vast number of users represents a massive opportunity to commercialise their extensive troves of big data to push products and services. It also tallies with a government effort to build a national credit database drawing in every citizen by 2020. And therein lies the crux – if private profit and government ambitions come into conflict, there's little question that the Party will prevail.
“We received much user feedback quickly after launching the service, and based on some useful feedback, we promptly decided to do some adjustments before re-launching it,” the Tencent spokesperson told FinanceAsia, citing the fact that more than 980 million WeChat users had access to the service.
“Tech firms work very efficiently,” the spokesperson added. Tencent in the past has dropped applications hours or days after launch. On January 31, it launched Lizhi, a news aggregator, but withdrew the beta version from its app stores in the afternoon of February 1.
Caixin, a Chinese financial media agency, had last week reported that the People’s Bank of China (PBoC) told Tencent to call off Tencent Credit amid concerns about excessive borrowing as well as misuse of personal credit information, citing “a person close to regulators”. A Financial Times report, which cited an unnamed PBoC official, said “Tencent’s beta system was taken down because it was seen as jumping the gun on the launch of the government’s own credit-scoring system, which will be licensed in a few months”.
PBoC did not rely to FinanceAsia’s enquiry immediately due to a working group meeting that spans Monday and Tuesday. No official announcements were issued.
IT GOES A LONG WAY
Still, industry observers say a fast-changing regulatory situation will inevitably have consequences – good or bad – for private companies' own credit rating ambitions.
“China has lacked a universal personal credit system, which constitutes a ceiling that fundamentally restricts the development of personal finance, including banks’ personal lending business,” said Michelle Li, head of research at AMTD Group, who specialises in coverage of the financial and fintech sectors.
Absent sound credit ratings based on data, lenders face high costs and risk in issuing personal loans. That is also why a few fintech players now use artificial intelligence technologies to analyse data and reduce operating costs.
“Having such a system will be beneficial to internet finance players and banks,” Li said, adding firms would have to continue developing this area if they want to cover personal finance.
It is well-acknowledged by Chinese regulators too. In 2014, the State Council published an ominous-sounding document called “Planning Outline of the Construction of a Social Credit System”. In essence, Chinese citizens can voluntarily participate in the system, operated by a unit of the PBoC, but by 2020 it will be mandatory that every citizen in China is rated and ranked.
To push through such an ambitious plan, Beijing in 2014 “encouraged” the development of a private credit scoring business, given many such systems may draw upon a wider scope of information. Alibaba and Tencent, for example, have the widest access to social media data in China.
Beijing in 2015 selected eight companies – including Ant Financial’s Sesame Credit and Tencent Credit – to pilot credit scoring services. And although the PBoC is yet to issue licenses to them, it does not prevent these firm from generating individual credit scoring for their own use. “They are not allowed to provide credit scorings to third parties or to generate revenue from them,” said Yang Xun, partner at Llinks Law Offices, who specialised in IP and data protection.
Being a utility-like public service would be tricky for the likes of Tencent and Alibaba. Firms tend to collect personal information from their respective channels and process and use the information for their own use, in part because they are not licensed to provide external services but also due to a commercial imperative. For example, Sesame Credit is affiliated to Ant Financial within the Alibaba Group.
But this contradicts to the government’s initial intention to boost its credit scoring business, which is to establish a nationwide open platform where personal credit score information can be collected and processed centrally and shared to the public, Yang said.
Also, some companies are rumoured to collect information for commercial purposes other than credit scoring, said Yang. This violates personal data protection rules and in turn makes the PBoC cautious about issuing licenses.
The government’s stance towards the private “social credit scoring” business has turned increasingly conservative, judging by minutes of PBoC’s meetings. In 2017, the PBoC emphasised the government-initiated credit scoring database but said private ones ought to be developed with equal importance.
However in January, PBoC said the government should lead such efforts and would strengthen the regulation over private credit scoring businesses, which should be no more than a “supplement”.
“This change in attitude results partially from recent scandals where credit scoring companies misuse personal information and partially from the successful development of a government backed credit information database which has already covered 60%~70% population,” Yang said.
The PBoC said its credit scoring database covered around 926 million people as of May last year.
But “the government is unlikely to shut down private credit scoring business,” said Yang. Instead, the tendency is to strengthen the control from a personal data protection aspect.
The government would attempt to “encourage the sharing of private-owned credit information database – which reflect individuals’ innovative and online financial activities – to supplement the government-backed database”, Yang said.