In 2015, MYbank launched the Flourishing Farmer Loan program, an effort to extend financial services to rural China. Because the banks program targeted customers who had no experience with banking, MYbank looked to determine credit-worthiness by using big data from internet transactions to create a nationwide credit-rating system for individuals and small enterprises. Credit-scoring was new to China and the banks pioneering efforts could pave the way for economic development in rural areas.
MYbank was an offshoot of the Alibaba internet empire founded by Jack Ma (Chinese name Ma Yun). Ma had built Alibabas online platforms to bring buyers and sellers together in China. Having found success in facilitating online transactions, Alibaba began offering financial services.
In time, these financial service units were spun out from the Alibaba group, first organized under Alipay and then rebranded under the name Ant Financial Services Group. By 2013 Ant Financial consisted of Alipay and Alipay Wallet, two services that facilitated online transactions (similar to PayPal) YueBao, a money market fund with 570 billion yuan (93 billion) under management Zhao CaiBao, a third-party financial services platform and micro-loan provider Ant Micro. Each of Ant Financials units had cooperative arrangements with Alibabas online platforms, providing data for business transactions and facilitating the transfer of funds.
In March 2014, Ant Financial received regulatory approval to create an online bank, MYbank. MYbank was among the first of five privately owned banks to be granted approval by the China Banking Regulatory Commission. MYbank was initially authorized to make loans, but not to accept deposits.
Besides looking at models of private ownership, the regulators were evaluating the implications of online banking services. While cautious, the China Banking Regulatory Commission welcomed new banking models that could increase available capital for private entrepreneurs and encourage economic growth in a way that the state-owned banks were not set up to provide. Regulators were also eager to see if private banks could support economic growth in rural regions far from main cities.
There was much riding on the success of the Flourishing Farmers loan program. An effective program could convince regulators to allow online banking for all banking services. Better access to credit could not only reduce the cost of loans for individuals and small businesses but also expand the potential market for financial and internet services.
Bank officials had designed the Flourishing Farmer Loan program to use the internet to communicate with loan applicants in rural areas and judge their credit-worthiness. To make the program sustainable, MYbank faced a number of challenges.
- Could MYbanks big data and algorithmic approach identify good credit risks for small loans without incurring the expense of multiple loan officers and bricks and mortar branches?
- Was the rural customer base for online banking robust enough to create a profitable program at scale?
- What did MYbank have to do to make a national credit-rating system for small enterprises successful?
