Alibaba taps transaction data to establish loan viability

China's e-commerce giant uses transaction data to establish credit viability and provide micro loans to individuals and businesses.

China's e-commerce giant, Alibaba, is tapping data from its voluminous online transactions to establish credit viability and provide financial services to small- and micro-sized businesses, which typically struggle to secure loans from big banks.

Alibaba has provided US$4.6 billion of loans collectively to 250,000 small and micro businesses.

"No collaterals, no secret connections. What we need is your credit," Jack Ma, founder and former CEO of Alibaba, said in a report on Chinese newspaper, Natonal Business Daily

What Alibaba has, though, is data, a lot of it. 

"We are developing our capability in digging for data and understanding it," Feng Chunpei, who is responsible for Alibaba's new financing program for small- and micro-sized businesses, said in a report on blog site, "At last, the data not only generate values but push forward new products [for Alibaba]. The data collected by Ali Finance is a means of production for us."

The company analyzes data of online transactions from its millions of sellers, both from its online store Taobao and online payment site Alipay. It then converts the information into a credit evaluation system. The results generated not only show the sellers' credit record, but more importantly, also help sellers get micro loans more easliy from Alibaba's financing program.

According to Hu Xiaoming, vice president of Alibaba and director of financial sector, small- and micro-sized businesses account for 76 percent of companies which need loans of less than 1 million yuan (US$163,000). "The banks just don't want to provide loans of 100,000 or 200,000 yuan to these small and micro businesses," Hu said in  Natonal Business Daily report.

Alibaba, though, has provided 28 billion yuan (US$4.6 billion) of loans collectively to 250,000 such businesses.

Feng, however, noted that using data to provide financial services was not Alibaba's ultimate goal.

Hu added: "The data shows an accumulated credit of an individual or a corporation. We first turn data into credit, then good credit leads to more loans and better services, and then you will generate more wealth. It is a virtuous circle, a circle of the value of data."

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