Beijing has pulled back on plans to license big technology companies to develop “social credit” scores for consumers, based mainly on their online activity, because of concern over conflicts of interest, industry analysts said on Tuesday.
The People’s Bank of China, the central bank, selected eight tech companies in 2015 — including e-commerce group Alibaba’s Ant Financial and game developer Tencent — to develop pilot programmes to give consumers credit scores.
The initiative was part of a government-backed effort to increase lending to hundreds of millions of Chinese who want access to small business loans or consumer credit but have no collateral or financial history. Beijing originally aimed to roll out a nationwide system by 2020.
The pilots, which monitored spending patterns but also personal behaviour and social media activity, initially raised concerns about consumer privacy. Some of their metrics were seen as irrelevant, including proposals to factor in exercise routines or what time of day people went online. Others were considered more sinister, such as efforts to rate “honesty” or “trustworthiness” by linking credit scores to friends’ social media posts.
Beijing has now decided not to award any licences this year after regulators expressed increasing concern about the potential for conflicts of interest. Their worries centre on the fact that many of the companies developing the systems also operate their own e-commerce and online financing arms and have proved reluctant to share data with rival platforms. This has made it difficult to establish comprehensive scores for individuals.
“The biggest reason [for delaying the licences] is that the credit companies should be independent third parties, otherwise there could be a conflict of interest,” said Li Ming, of the Beijing Big Data Research Center. “The door isn’t closed to a truly independent third party.”
The more cautious approach comes as financial regulators move to rein in risky financial behaviour. Most notably, the head of insurer Anbang was last month detained because of concern about systemic risks from the purchase of overseas assets with money raised through high-interest financing products.
The PBoC is leaving open the possibility that the companies piloting the rating schemes could merge their credit scoring arms into an industry association, spin them off or find external partners, a government official said.
The central bank is examining more traditional ways to establish consumer credit ratings. But methods used in North America or Europe are not easily applied in China because although mortgages and credit card use are becoming more common, most Chinese still lack a formal credit history.
Harnessing big data available to tech companies had been seen as a solution to that problem, given the proliferation of online shopping, banking and investment via platforms owned by private tech companies.
For instance, Alibaba’s Sesame Credit system rates users partly on their purchases through Alibaba’s online payment system Alipay. China Rapid Finance, which is not among the eight pilot programmes, draws on data scraped from Tencent and others to develop its credit scores.
“I don’t see this as something the government will give up and they certainly don’t want Alibaba and Tencent to grow more powerful than they are now,” said Anne Stevenson-Yang, head of J-Capital Research. “
They want [consumers] to have a unique identifier and a single social credit record, so that would have to be managed by a government agency.”
This article has been amended to clarify that China Rapid Finance is not among the eight pilot companies that would have applied for licences