Alibaba Is Creating It’s Own Credit Score for Chinese Consumers
Alibaba is working on an entirely new credit score system for Chinese consumers that is based on their e-commerce habits and is likely to drive more credit usage in the ever-growing Asian economy.
The system, called Sesame Credit, is based on data from 300 million registered shoppers and 37 million vendors on Alibaba’s various e-commerce services. Sesame Credit takes all of that data, analyzes it, and then creates a score from 350 to 950 that determines the creditworthiness of the consumer.
The credit system is designed to extend credit to more Chinese consumers, who traditionally have not had access to revolving debt in China’s older system. The idea, according to Sesame Credit Chief Data Scientist Yu Wujie, is to show the creditworthiness of people who “may have never obtained bank loans or applied for credit cards” based on other bill paying usage and residential status, all of which can be inferred from Alibaba’s large data sets.
The large data-driven and database-focused approach for building a credit profile is far more sophisticated than what we Americans currently enjoy.
The old credit scoring system in the United States is just that—old. The FICO score dates back to 1989, and has become so complicated that there are actually 49 different credit scores in use. It also has its critics, who grew much louder and confident in 2008, when they noted that high FICO scores didn’t stop many from defaulting on their homes.
Already, the system is expanding to new services: CAR inc. has recently announced they will accept Sesame Credit scores, signaling that the private market is embracing Alibaba’s approach to credit. With that, Alibaba is embedding itself deeper into the Chinese economy.