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Chinese second-largest e- commerce player JD.com is now betting big on its online finance business. Liu Qiangdong， CEO and founder of JD.com， says that the finance unit will contribute 70% to the U.S.-listed com-pany’s earnings by 2025.
E-commerce， logistic platform， technology platform and Internet finance have been always viewed as four growth poles of the company and Internet finance is the company’s most promising business.
China is sitting on the cusp of Internet finance boom. As China’s largest online direct sales company boasting tens of millions of customers， JD.com takes the advantage of its large customer base to expand its presence in Internet finance.
From JD.com’s overall financial business blueprint， the unit can be divided into four parts： consumer finance， supplychain finance， platform finance and payment system.
Bet on Consumer Finance
Consumer finance refers to short-term loans for personal purchases of durable goods or services. In a report， Boston Consulting Group （BCG） says that the consumer finance market will embrace an explosive growth， driven by growing receptivity in the under-penetrated market， along with the increasing purchasing power of consumers and accompanying government support.
JD.com has been stepping up its efforts to grasp the great opportunities and tap the consumer finance market.
In January 2014， the e-commerce giant launched the service its buy-first-pay-later service JD Debit Note on its finance platform JD Finance. The service， which is the company’s the first consumer financial product， enables JD.com’s customers to borrow money from JD Finance to shop on the company’s e-commerce platform.
The online retailer grants them up to 15，000 yuan credit. Consumers can choose to pay in full within 30 days or make monthly installments in 3-12 months.
It is worthy note that the e-commerce retailer chose campuses as one of the financial product’s major target markets.The decision proved to be wise as JD Debit Notes rapidly proliferated on university campuses.
The company’s efforts are paying off now.
According to latest data from JD Finance， the amount its customers borrowed from the Internet financial service provider via JD Debit Notes soared by more than 600% in June， compared to the same period last year. Meanwhile， the number of customers who used JD Debit Notes in the month grew by 700% on an annual basis. The gratifying results also show the huge potential of the consumer finance market.
Apart from JD Debit Notes， JD.com also plans 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.
Partnership with ZestFinance
With the finance business expanding， JD.com hopes to greatly improve the efficiency of deciding who should be offered credit or not， according Josh Gartner， senior director of international communications at the online retailer.
Now， the retailer partners with ZestFinance， U.S.-based financial technology startup established by Douglas Merrill， former chief information officer （CIO） and vice president（VP） of engineering at the technology giant Google five years ago， to solve the problem.
On June 26， the Beijing-based JD.com announced that it entered into an agreement with ZestFinance to cofound a joint venture.
The U.S.-based startup’s mission is to help under-banked consumers find access to credit at lower interest rates， according to Merrill. The financial technology company helps lenders assess the credit risk of potential borrowers by calculating creditworthiness with a combination of artificial intelligence， machine learning， and big data instead of relying on a person’s credit history， the main ingredient in traditional credit scoring.
Under the agreement， the joint venture， named JDZestFinance Gaia， will provide Chinese lenders with credit risk evaluation services. In addition， as part of the agreement， JD.com will make a minority investment in ZestFinance.
JD.com， which claims to have 100 million monthly active customers， will be the first customers of the joint venture. The latter will use ZestFinance’s machine learning underwriting technology to analyze JD.com consumer data and churn out a credit risk score.
The partnership between JD.com and ZestFinance will help make credit fairer in China， says Chen Shengqiang， JD Finance’s CEO. He called the partnership with ZestFinance “a foundational step toward building a reliable system for assessing credit risk that will help meet the huge market need.”
Fierce Competition
JD.com is not the first company in China to work on consumer credit rating services. Its biggest rival Alibaba Group， Chinese largest online retailer， is also active in the space. In January， Ant Financial Services Group， Alibaba’s Internet finance affiliate， launched Sesame Credit Management， a consumer credit scoring service based on Alibaba’s more than 300 million user profiles and the behavioral data.
Only one mother later， Tencent also added to the lineup，saying it would roll out a similar system with an aim to leverage the vast amount of data generated by its more than 800 million monthly users.
Unlike its two bigger rivals， JD.com pulls in a third-party to provide the underwriting and big data tech.
“At ZestFinance， our mission is to provide fair and transparent credit to everyone everywhere in the world，” says Merrill. “We’re excited to work with JD.com to create powerful consumer credit evaluation in China. As China uses advanced data science to make credit decisions， its underwriting will likely leapfrog approaches used by most lenders in established markets， which are based on technology created decades ago.”
According to Merrill， China is a huge market where consumer credit rating remains rudimentary， with little data shared among banks. Credit rating is based on consumers’ profile and purchase history. However， data shows only 20% of Chinese adults have a credit score. As a result， Chinese lenders lack the data typically used in established markets to determine creditworthiness.
On the other side， Chinese consumers are hungry for convenient， reliable and fair credit channels， which require both a systematic method for making decisions and a robust infrastructure that enables lenders to share data. However， neither of them is sufficiently developed yet in China.
According to experts， big data will play a significant role in changing the situation. “Data science methods can fill a gap where traditional metrics tend to be less useful， and China would obviously be one of those places，” says Gartner.
In addition， Chinese government also calls for a unified credit information system. Earlier this year， in fact， China’s central bank issued a notice allowing eight Chinese private organizations to prepare for the launch of their consumer credit rating services over a six-month period.
According to an insider， JD Finance is about to launch its first credit rating service. It is no doubt that a fierce competition among those players will ensue.