Reference no: EM132417616

By offering as little as a few bucks at a time to new borrowers, a microlending business of Chinese technology giant Ant Financial Services Group has quietly swelled into one of China's largest providers of personal credit lines. More than half of Alipay's 900 million users in China have opened Huabei accounts, according to a former employee and estimates from two of Ant's shareholders. There were 711 million credit cards in circulation as of June 2019, according to the People's Bank of China, in part because some individuals have multiple cards. Chinese billionaire Jack Ma and is the world's most valuable private technology startup. It has leveraged its giant user base spanning about two-thirds of China's population to cross-sell products and services.

The company has leaned on domestic banks and China's asset-backed securities market to help fund Huabei's lending. As of June this year, an Ant unit had issued more than 392 billion yuan ($55.7 billion) in bonds backed by Huabei loans, according to Wind, a data provider. Most Huabei users borrow relatively small amounts of money, which has helped keep default rates low. The average outstanding balance on Huabei's credit lines was less than 1,000 yuan ($142.10) as of early December, according to a person familiar with the matter.

In the U.S., banks and credit-card companies typically assess the creditworthiness of individuals-often by analyzing reports from national credit bureaus such as Experian and Equifax-before giving them credit cards or unsecured loans. But most Chinese consumers don't have credit scores that are based on their payment histories and outstanding borrowings across multiple lenders and debtors. Chinese online lenders have their own proprietary methods of assessing an individual borrower's risk.

Ant has been trying to grow Huabei partly because increased regulation is likely to make its business of facilitating mobile and internet payments less profitable. Alipay, which was started in 2004, handled more than $1 trillion worth of payments last year, according to research firm Analysys. Since 2017, it has been required to route fund transfers to and from banks through a government-backed clearing system.