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Business Trends

Internet lending is booming in China

Traditional financial services face stiff challenge from the likes of Alibaba

Taobao's consumer lending service is easily accessible through a smartphone: Convenience is one reason why internet lending is growing strongly in China.

GUANGZHOU -- With the growth of online shopping in China, the number of consumers who make deferred and credit card payments is increasing sharply, especially among young people.

The balance of online consumer loans in China has grown about fivefold between 2015 and 2017, reaching 350 billion yuan ($54.6 billion), according to Chinese research company Analysys.

The sharp rise in online lending comes as Chinese internet companies, including e-commerce giant Alibaba Group Holdings, have begun offering more convenient services. That is expected to increase demand for consumer credit still further.

Deferred payments, such as installment payments and credit card payments, were once rare in China. But things began to change in 2009, when the government eased restrictions on small loans to consumers. The rules were further relaxed in 2015.

The regulatory moves coincided with the spread of online shopping and smartphone payments in China. Around 2015, e-commerce companies started providing services similar to installment and credit card payments. Shoppers on Taobao, Alibaba's online retail site, can choose their method of payment as soon as they select a product, paying in a lump sum or in three installments, for example.

Internet shoppers in other countries typically must enter personal information, such as credit card numbers, when making a purchase. In China, online retailers such as Alibaba and JD.com extend credit themselves. Because these companies already have their customers' personal data, shoppers do not need to provide more information to complete their purchase.

Alibaba has its own smartphone payment service called Alipay. JD.com works with WeChatPay, a smartphone payment service operated by Tencent Holdings.

The move by e-commerce companies into consumer credit pits them against China's largest credit card issuer, UnionPay, and banks. The traditional financial services companies are losing ground to the internet upstarts in profitable lines of businesses, including consumer loans.

In China, internet loans are growing in popularity because they are simple and convenient. More borrowers are taking out such loans, particularly young people. A 30-year-old man living in Shandong Province is one such borrower. Making "loan payments through Alibaba's service is more convenient than [using] credit cards," he said.

According to a survey conducted by research specialist Analysys in December 2017, people between the ages of 24 and 35 accounted for more than 70% of consumer borrowers in China.

Chinese consumers, especially people born in 1980 and later, are less squeamish than their older peers about buying on credit. But the total balance of consumer loans in China is still about 60% lower than that in the U.S. and is expected to continue growing.

Analysys estimates that the balance of internet loans in China will more than double to 720 billion yuan in 2019, compared with 350 billion yuan in 2017. That flow of credit will likely give a lift to the Chinese consumer market.

 

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