Jack Ma's Ant In Discussion To Share Data With State Firms: WSJ

Ant Group Co. discussed with China's state-owned enterprises to form a credit-scoring company by Q3 to put the fintech giant's proprietary consumer data under regulators' purview, the Wall Street Journal reports.

What Happened: The initiative could lead to Ant surrendering some control over the voluminous data on the financial habits of Chinese citizens.

Over one billion individuals use Ant's Alipay app to spend, borrow or invest their money. The information that Ant has collected and used has been the reason behind the company's success in recent years.

The regulators are pushing for prospective state-owned shareholders' dominance in the new entity. Potential shareholders include a Shanghai-based financial conglomerate.

The discussions included data, the credit scoring methodology, and its synchronization with China's broader nationwide database plans.

The new venture with state-backed investors will overrule Ant's previous attempts to lead a national credit-scoring system under its brand, Zhima Credit.

China lacked a robust national credit-scoring system like America's FICO, whose scores depended on individuals' borrowing and repayment histories from various sources.

The People's Bank of China runs a Credit Reference Center, which lacks data on many people who don't qualify for traditional bank loans.

Why It Matters: Ant and other fintech companies had mostly restricted information regarding China's lending within their systems.

Ant had resisted regulatory pressure for data sharing, citing user consent issues. However, circumstances changed following Ant's initial public offering cancellation and a broader regulatory crackdown on China's tech giants.

Ant in April talked about restructuring into a financial-holding company supervised by China's central bank. It talked about setting up a company that will apply for a personal-credit reporting license.

Earlier this month, Ant started a consumer-finance company that counted state-owned and private enterprises as shareholders.

Ant, whose Alipay platform handled over $17 trillion worth of payment transactions and originated loans to over a third of China's population in the year to June 2020, had collected troves of consumer data for years.

The company in 2015 launched Sesame Credit, then changed its name to Zhima. It aimed to assist the Chinese consumers and businesses with little or no formal credit history.

Around that time, the PBOC invited eight private companies, including Zhima and Tencent Holdings Ltd TCEHY, to test their credit-scoring systems.

Zhima expanded aggressively, hiring people from Equifax Inc EFX to build a risk assessment and scoring system.

Zhima's credit-scoring metrics analyzed alternative data like individuals' online social networks and purchasing habits apart from borrowing and payment histories.

Between Jun. - Sep. 2016 Zhima connected to over 300 nonbank financial institutions like peer-to-peer lending platforms that were growing across China. It also supplied its credit scores to multiple commercial banks for loan data and default information.

The PBOC canceled the nationwide credit-scoring system run by private companies with profit motives. A central bank official disclosed firms' unwillingness to share information, had conflicts of interests, and a poor understanding of credit scoring methodology to a media outlet.

Instead, the central bank in early 2018 issued a three-year license to a new government-led company called Baihang Credit Scoring.

The eight companies that sought to build their systems were given an 8% stake in Baihang, with the remaining 36% held by a government-affiliated entity. The companies had to provide data to Baihang to build a national credit-scoring database. However, the companies did not subscribe to the idea.

Ant transitioned Zhima into a loyalty program for Alipay users.

In Jan. 2021, the central bank mandated licenses for credit-scoring businesses.

Zhima will not be part of the new credit-scoring company that Ant is likely to set up with state-owned firms.

The new entity will have access to the same data used by Zhima, and Ant will exit its shareholder position in Baihang after the entity came into existence.

Baihang's credit-scoring license expired in Jan. 2021.