Do we really need loan machines?

I never quite know whether fascination with algorithm-driven lending is a media thing or a Silicon Valley thing. What or whomever fuels fintechs, it’s a global phenomenon, a point underscore by recent coverage of Jack Ma’s online lending to small businesses. As with venture-backed fintechs out of Silicon Valley, Ma’s effort, called MYbank, analyzes thousands of variables by applying its risk-management algorithms against data you’d expect (payments history and bank transactions) and some you wouldn’t (for example, social media posts indicating that the business owner, say, failed to return a borrowed umbrella).

The positive is loan approvals in around three minutes, no messy human interaction required. The negatives are you lose the opportunity to strengthen an important commercial relationship (with that human banker) and miss out on gaining valuable insights to how to improve your business’s creditworthiness and, potentially, your ability to thrive over the longer-term.

On one hand, MYbank’s emergence appears to be about bank inefficiencies, the messy human banker issue. Yet other research suggests the real reason for government crackdowns that have made it hard for small businesses to secure loans about protecting borrowers from shadow lenders.

China is quickly becoming a world leader in the use of big data and artificial-intelligence technology to make loans, according to Cliff Sheng, co-head of Greater China financial services at Oliver Wyman, a consulting firm. Among the country’s biggest advantages: it takes a more relaxed approach toward privacy than many other jurisdictions.

“Our legal framework and regulatory environment — which raise fewer privacy concerns — make it easier to generate a huge amount of data and thus provide an unparalleled testing bed,” Sheng said.

MYbank expects to face competition from traditional banks such as Construction Bank, as they roll out big data/AI driven mobile lending apps. After all, this is the country that boasts a government-administered social credit system.

We have previously covered the basic idea behind the system and the many concerns its surveillance-based logic raises. Unfortunately, until a more human-centered alternative emerges, small-business owners such as Zeng Ping’en, who runs a scooter store in Hangzhou, will turn to lending apps like MYbank to cover short-term cash needs. To them, these apps are game-changers.

— LaVonne

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