In China, a microfinance company lends money to risky customers in just 20 minutes with no collateral. Shanghai-based CashBUS provides emergency money through a mobile app to the “moonlight clan,” people who use all their salaries before the end of the month. No needs to bear the long application process for bank loans, CashBUS also “saves faces” for borrowers by avoiding the need to ask money from their friends.
Founded by Tang Yang, a serial entrepreneur over 18-years, CashBUS lends RMB500-1000 for up to two weeks to borrowers. The entire process is automated with three steps—quick online application, instant decision and cash transfer. From social data like WeChat to online purchase record like JD.Com, customers can choose the type of data that CashBUS can access. The more comprehensive are their applications, the sooner the borrow requests get approved.
“We can approve a borrower’s request within three minutes. Thanks to technology and big data, we use technology to find these near-prime borrowers, who are risky customers that are often rejected by banks,” Tang told FORBES at the Lendit Conference in New York this month.
Near-prime borrowers or the best pool of subprime borrowers are defined as customers with a FICO score between mid-600s to the low 700s. As banks typically lend to borrowers with at least a personal credit score of 720, it creates a group of customers who have a hard time receiving financial assistance.
The right time
Here is the catch: there are 500 million people in China do not have a credit score, and among those 340 million people who do, only 20% of them are able to get loans from banks in 2014. Tang Yang sensed the huge business potential here. After his early venture in building China’s largest online pet community Goumin.com and a forerunner WeChat messaging app Blue Talk, he jumped into fintech—founded CashBUS with three others in 2014. It received $5 million A round funding in 2015, and another $25 million last year. China Growth Capital is an early investor of CashBUS.
If the disappointing results in Blue Talk were due to China’s lack of popularity of smartphones in 2005, the promising future of CashBUS is because of doing the right thing in the right time and right place. CashBUS had originated one million number of loans through last May, where this accumulated number–one million—is projected to be the requested amount for just one day in 2018.
“China’s cash lending market has great potential, and it is a lot larger than the U.S. or European. When people are so hunger for food in our case money, you feed them, and that’s how we keep expanding our customer base,” Tang Yang told FORBES.
The right place
The year of 2013 is a turning point for China’s fintech industry. China’s state council released a regulation on the credit investigation industry—allowing institutions to start businesses in individual credit investigation for the first time. Before this regulation, only affiliates under China’s central bank People’s Bank of China can provide such credit score for individuals.
With the emerge of third party companies in collecting personal data, fintech companies like CashBUS now can purchase these customer authorized data to get a better sense of their customers, such as income level, spending habit or social media behavior.
Here are some examples: through analyzing social media data, third party companies can find the correlations between a borrower’s creditworthiness and his activities or friend circle. If the borrower attends volunteering events frequently, along with his spending habit data, the model then can predict that this person is a creditworthy person. If the borrower has other friends involved in fraud crimes, it alerts to the company that this potential new client may engage in a similar activity in the past, thus hurt his credit score.
While online privacy protection in the West has always been a concern, in China some users are eager to provide as much as they could to prove that they are a “good person”. In many developed countries like the U.S, most borrowers already have a consumer credit score and may think that giving away addition information is reluctant. But in China, millions of potential borrowers lack access to credit scores as the individual credit investigation industry just starts burgeoning. Fintech companies can fill in the gap in discovering these potential “good person” through data.
“Many of our borrowers are cooks, taxi drivers or construction workers. They are easily denied by traditional banks and have no other means to get a credit score. But this is not to say that they are not a credible person. By granting us to get their personal data, we could determine the trustworthiness of them,” Tang Yang explained.
The right thing
All businesses come with risk, so does the fintech industry. A common risk for CashBUS is bad loans. The company has recorded 150,000 bad loans so far, according to Tang Yang. But this is less than 15% of the more than one million loans and not his major concern.
“Big data is our friend. We can use the regression model to lower our risks by selecting more creditable borrowers,” Tang Yang said. New customers consist of 50% of the total customer BASE while standing for lower than 5% of bad loans.
A strong government regulation and being a responsible cash lending service are Tang Yang’s real concerns. The micro cash lending industry should set standards to ensure a sound reputation, Tang Yang told FORBES. He also introduced some best practice recommendations, including the loan principle, should not exceed the 25% of the borrower’s monthly income and beyond a 1% daily service charge.