JD.Com Inc (ADR) Partners With ZestFinance, Narrowing Gap With Alibaba …

28 Jun 2015 | Author: | No comments yet »

China’s JD.com to launch credit-scoring venture.

The Chinese are notoriously savvy savers, with a gross national savings rate of about 51 percent, according to the World Bank. BEIJING/SHANGHAI: China’s No. 2 e-commerce firm JD.com Inc is launching a Chinese consumer credit data system as a joint venture with U.S. credit-scoring technology company ZestFinance, taking on a rival service linked to the larger Alibaba Group Holding Ltd.But with economic growth in China having slowed since 2007, the government is trying to boost this industry, creating opportunities for companies to create private banks and begin lending.

JD-ZestFinance Gaia, as the joint venture will be known, will use the U.S. firm’s machine learning technology to analyze JD.com’s online shoppers’ data and churn out a credit risk score, according to a joint press release Friday. They mine streams of digital data with clever software to calculate creditworthiness instead of relying on a person’s credit history, the main ingredient in traditional credit scoring. The latest deal that hopes to capitalize on China’s burgeoning consumer credit market brings together Los Angeles-based ZestFinance, a financial company with technology that can underwrite borrowers with incomplete or erroneous data, and JD.com, one of China’s largest online retailers. The aim is to offer new microloan options to Chinese consumers, particularly those who not have credit history and other credentials traditionally required to land a credit card or other finance options.

The JV will leverage ZestFinance’s machine learning-based credit-decisioning technology and JD.com’s reservoir of consumer data to provide credit risk evaluation services to companies in China. So far, the new breed of big data lenders has focused on niche markets — recent college graduates, immigrants and payday borrowers — where people often have scant or inconsistent repayment records, and the conventional math of risk analysis stumbles.

But in recent years, as the growth of the Chinese economy has slowed—thanks to declining demand for exports and new real estate projects—the government has been desperate to get its thrifty citizens to spend, spend, spend and drive economic growth from within. Assigning people and businesses accurate credit risk scores has been difficult in China, in part due to a lack of publicly available data and little information-sharing between financial institutions. Today’s announcement with ZestFinance, a leader in consumer credit evaluation, is a foundational step toward building a reliable system for assessing credit risk that will help meet the huge market need.

Creating an accurate credit profiling system could potentially be lucrative, both for making safe bets on lending to customers who can then spend more on online shopping, and by selling the profiles to third parties. “Ultimately opaque credit markets are very hard and we’re excited to try to use our technology in that space,” said Douglas Merrill, founder and CEO of ZestFinance and a former Google Inc chief information officer. The venture, JD-ZestFinance Gaia, will initially be used to assess credit risk and offer installment loans for purchases on JD.com, which has 100 million active customers and generates yearly revenue of $20 billion. This requires both a systematic method for making decisions and a robust infrastructure that enables lenders to share data — neither of which is sufficiently developed yet in China.

We aim to be the single-stop solution for Chinese consumers to make all of their daily purchases, and this new JV with ZestFinance is another big step in our development.” Lenders in China lack the data typically used in established markets to determine creditworthiness, as Chinese consumers often have little-to-no credit history, leaving a huge gap. Because China lacks the equivalent of United States credit scoring agencies like Equifax and Transunion, “what we figured out how to do was take pure ecommerce purchasing behavior — transactional behavior — and turn that into credit data,” says ZestFinance CEO Douglas Merrill. The ZestFinance big data credit-decisioning platform is highly applicable to the Chinese market because it accurately underwrites people without credit history. And because China doesn’t have a long history of consumer credit, lenders don’t have a lot of data like credit scores to help them gauge the trustworthiness of potential borrowers. “If you’re trying to build a broader credit infrastructure you need credit transactions.

JD.com is also making a minority investment in ZestFinance, though the companies would not disclose the size of the investment or the valuation of the start-up. Instead of analyzing the limited number of credit variables most traditional underwriting methods consider, ZestFinance analyzes tens of thousands of data points to effectively evaluate creditworthiness. Alibaba’s Ant Financial affiliate — which this week launched an online bank — has run investment fund Yu’e Bao for two years (accumulating $92 billion in its first year) while it has offered loans for even longer.

But their algorithms sift through data that can include a person’s social-network connections, web-browsing habits, how they fill out online forms and their online purchases. For instance, on ZestCash, borrowers who enter their name in all caps on the application tend to be a worse risk than those who use regular capitalization. ZestFinance, Inc. is a financial services technology company that uses machine learning and data science to help companies make more accurate financial decisions. WeBank’s first financial product — a microloans service — went live earlier this month, offering loans of $3,225-$32,250 using the company’s own big data solution.

The picture that emerges from the data, enthusiasts say, should result in more accurate risk analysis, thus opening the door to extending consumer credit to millions more people at lower cost. ZestFinance also intends to tease out unconventional signals to make its credit evaluations in China. “If you go onto JD.com and you buy a luxury item like an expensive iPhone, are you a good or bad credit risk? Through its content-rich and user-friendly website jd.com and mobile applications, JD.com offers a wide selection of authentic products at competitive prices and delivers products in a speedy and reliable manner.

As of March 31, 2015 JD.com operated 7 fulfillment centers and a total of 143 warehouses in 43 cities, and in total 3,539 delivery stations and pickup stations in 1,961 counties and districts across China, staffed by its own employees. Still, The Paulson Institute report notes this attitude is beginning to change, as both credit card balances and bank loans to households continue to rise across the country, driven by a younger generation of Chinese consumers. The government has recently been looking at consumer credit as a way to boost growth, focusing on ecommerce as one area of opportunity. “Ecommerce is going up by a huge percentage every year in China and is growing much faster and is already a much bigger part of the economy than in the U.S., so we see that as a huge opportunity,” says Josh Gartner, JD.com senior director of international communications. If companies like ZestFinance, JD.com, and Alibaba succeed in making credit options more readily available, it could make China and even more interesting market for tech companies who already view the country as the key to their futures.

These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident” and similar statements. Among other things, the quotations from management in this announcement, as well as JD.com’s strategic and operational plans, contain forward-looking statements. Only 20 percent of Chinese adults have a credit score, and they often are given credit through the People’s Bank of China, the nation’s central bank, and through affiliations with large state-owned corporations. Since early 2014, JD.com had been offering its own consumer loans of up to a few thousand dollars for purchases of televisions, smartphones, computers, refrigerators and other merchandise. All information provided in this press release is as of the date of this press release, and JD.com undertakes no obligation to update any forward-looking statement, except as required under applicable law.

In its test run for the Chinese company, ZestFinance built risk models using JD.com transaction data: what people buy, when they buy it, what brands they choose, where they live and other nuggets of information in the sales data. Merrill said, if the purchases are made during the midday lunchtime, from an office computer, it could well be a sign of a hard-working employee squeezing in time to buy necessities. The Chinese online retailer, said Josh Gartner, senior director for international communications for JD.com, hopes to “greatly improve the efficiency of deciding who should be offered credit or not.” Data science methods, Mr.

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