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14 Sep 2016

China's National Internet Finance (fintech) Association finally launches credit scoring system

Written by Felix Yang

China's internet finance, or fintech, sector has had a busy couple of years as the industry has developed to be a critical part of the financial industry as a whole. Yet, the developments have been somewhat imbalanced. While areas like digital payments and asset management grew and matured, others like credit scoring fell behind. On September 9th, China's National Internet Finance Association (NIFA) finally launched their digital Credit Information Sharing platform, which really brings credit scoring into the fintech fold in China. 

Credit scoring was also one of the most challenging areas for fintechs to tackle. Information asymmetry and completeness were issues as was data sharing, even intra-company data sharing. A single borrower might apply for loans on different platforms, and without informing lenders, very quickly borrow more than they really should or indeed can.

The new platform pushed forward by NIFA will help member companies capture and share customer data. At the same time, it will also improve the accuracy and efficiency of credit checking. As leading players in their sectors, the 17 existing member companies will encourage more internet finance companies to join the system as the platform will become stronger when there are more participants.

The first group of members joining the platform include Ant Finance, JD Finance, and Lufax. Members all signed the credit information sharing platform agreement and agreed to not actually share the underlying individual customer information. As an example, when the system receives an inquiry: it will send the request to all other member companies and collect the results. Information queried might include: the amount of existing loans under the same borrower, or the number of recent checks, but the source of the data will be blocked. That basically means that although you might know that the person has a $10,000 loan, you would not know from which platform, so competitive insight, largely, remains protected.

The regulators and government have struggled in the past to get credit rating to work, but this latest effort might just crack the nut on what has been a challenge for the industry for far too long. 

 

 

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