China has more than 600 million people who don’t have credit scores because they aren’t easily obtained. If they could get a FICO score, it would be equivalent to 700 or less, and that adds to the difficulty of obtaining credit or loans from traditional sources. Most of these people don’t need a lot of money, just a small loan to cover a gap between paychecks. They also need a way to build the equivalent of a credit history and don’t need abusive interest rates that keep them in financial bondage.
Yang Tang founded CashBUS in 2014, in Shanghai, to provide small short-term micro and installment loans to fill this need. After 15 years of entrepreneurship in Beijing, researching Wonga in the UK, and visiting LendIt in the US, Tang realized high tech and big data could be used to do credit checks, so he built CashBUS.
“If you provide a microcash loan to a user,” Tang said, “you have to know they are going to pay it back. In China, they don’t have credit histories, so they are blank. We ask the user to give us six months of telecom records. The telecom records have customer service records and more data. With authorization, CashBUS can see the record and do a credit check by looking at who you call. This telecredit can be used to calculate risk.”
By allowing access to data like phone records, the consumer is proving reliability. Further authorization of ecommerce data like transactions at JD Finance (China’s version of Amazon) shows purchase records. Other authorization allows viewing of a 12-month record on Alipay or job history.
“If the job changes a lot, maybe they are a higher risk,” Tang said. “It’s a massive challenge to calculate because the loan is very small, the equivalent of $100 US dollars for one week at $5 interest. There are millions of borrowers, some younger than 13. If a person’s telecom budget is $100 or $150, I can guess his income.”
CashBUS, the first microcash lender in China, sees less than 5% default on their microloans.
“In China, the data is very good, but in the UK, you cannot have all that data,” Tang said. “In the UK and US, they have a FICO-like score.”
CashBUS’s risk calculations take these cultural differences in culture. Loans comes from the company’s $13 million dollar venture capital and is paid back quickly because they are short-term.
CashBUS delivers its service through WeChat. There is no need to download an app. Tang anticipates 5% of the Chinese population, about 17 million users, will use his service. “Other companies clone CashBUS,” he said. “Borrowers are normal people: Servers, drivers, cooks, and sailors — normal people with an average salary, and they need only a small loan before payday. The foundation is data because, if you have data, you can calculate who will probably not pay you back.”
In the Chinese market, Tang said, cash loans should be small, with a fee of less than 1%. CashBUS currently charges .7% and the life of the loan is only one or two weeks.
“Payback should have a cap and not grow,” Tang said. “This is very important. It should be friendly, otherwise we do harm to the user.”
In China, a lot of people think microcash lending is high interest lending, but it’s not. Short-term loans must have a higher APR to encourage Fintech industry growth, Tang said.
In the future, Tang would like to get into insurtech since it also requires similar calculations that revolve around being consumer-friendly and responsible. He said that talent and partnership are important to building a sustainable lending business. CashBUS has grown to 1.5 million users and has the goal of creating a good environment for the industry while protecting the user.
Written by Nicki Jacoby.