Thursday, May 19 2022

A significant portion of the sales during this year’s Singles Day shopping event a China it came from credit spending, according to analysts’ estimates.

While it is common to use a credit card to shop in the US, China is known for its high savings rate and preference for paying only with handy funds. Widely used mobile payment systems also work more like a debit card.

But consumer habits, especially among Chinese youth, are changing, thanks in part to growing consumerism and in part to the development of financial technology.

For instance, Alibaba-The Ant Financial affiliate has a product called Huabei, which provides users with a revolving line of credit or installment purchase plans. has a similar payment product called Bai’tiao.

The rise in the use of credit products was most evident last Monday, known as Singles Day in China.

The annual shopping spree on November 11 is led by Alibaba, which he reported record sales of 268.4 billion yuan ($ 38.3 billion) on its shopping platforms this year. This is a year-on-year increase of around 26%, slower than the 27% growth in 2018. From November 1 to 11 overall, online retail sales exceeded 870 billion yuan. The Chinese Commerce Ministry said Thursday.

On Singles Day this year, Kapronasia fintech analyst Leilei Wang estimates that at least half of all purchases on Alibaba’s Taobao and Tmall e-commerce platforms were made using Huabei.

“This type of consumer finance encourages a certain amount of consumption,” Wang said, noting that younger consumers are generally more willing to try new ways to spend.

During the trade event, Tmall cut Huabei’s interest rates to zero on 8 million products, five times the number of products from last year, according to a Ant Financial MyBank digital bank report, cited by state-owned Xinhua media. A separate article from Xinhua quoted Ant Financial Digital Finance president Huang Hao as saying that typically, companies that open support for Huabei see transactions increase by 38%.

Data for Huabei’s Singles Day purchases was not available from Ant Financial. A company representative did not immediately respond to a request for comment.

On social media, one user said some of the difficulties after Singles Day include having to refund Huabei and picking up packages.

Banks build their business with credit cards

China Merchants Bank said his credit card transactions on November 11 hit a record high 27.2 billion yuan, while Industrial and Commercial Bank of China (ICBC) claimed to have processed at least 20 billion yuan the same day.

“Corporate loans have a NPL problem, so banks across China are looking to diversify their retail businesses,” Nicholas Zhu, Moody’s banking analyst in Beijing, said in a telephone interview.

He noted that some banks are working with stores to create installment purchase plans for consumers, which theoretically help those individuals build credit history.

The lack of a unified credit system in China has generally made it difficult for many people to get loans or a credit card, especially migrants working in large cities.

The logo and smartphone of the Alipay digital payment app can be found on a desktop at the Wirecard AG headquarters in Munich, Germany, Wednesday 5 September 2018.

Matthias Doering | Bloomberg | Getty Images

But now, companies like Alibaba’s subsidiary Ant Financial have volumes of purchase and transaction data with which to better assess creditworthiness.

“Overall, the volume of market data is increasing, so banks can improve their ability to mitigate risk,” said Hang Qian, principal of Oliver Wyman’s finance and risk consulting firm, and practice of public policies. This is according to a CNBC translation of his remarks in Mandarin.

Purchase in installments is more popular

In China, many credit cards also offer installment purchase plans.

Their popularity, in addition to the general use of credit cards, was most evident on Singles Day this year, Qian said of Oliver Wyman.

Purchasing by installments is more popular with Chinese and cheaper than using a revolving line of credit, he said. It estimated that the use of installment purchase schemes accounted for approximately 60% to 70% of the credit utilization.

Fenqile, an installment purchase e-commerce platform operated by LexinFintech, said that during this year’s Singles Day, the gross value of the merchandise exceeded 100 million yuan in half the time it took last year. GMV is a key industry metric that measures the total dollar value of merchandise sold.

The fifteen-month and two-year plans were the most popular among Fenqile Generation Z users (roughly those born in the mid to late 1990s), with an average monthly payout of less than 200 yuan, the company said. society.

AppleThe iPhone was the most popular smartphone on the platform, the company said, noting that iPhone 11 sales during the first 8 hours of November 11 were more than double that of the first day the device was available on Fenqile.

Widespread risk of fraud

The growing use of consumer credit in China rings many alarm bells about irresponsible spending, and anecdotes abound of individuals using various credit products to pay other bills. Verifying that a new customer doesn’t have another open line of credit at another financial institution is one way banks can mitigate risk and an area where fintech firms can have an edge with their data and analytics capabilities. .

“China is so big, there are always stories on the sidelines,” Moody’s Zhu said.

China’s savings rate is over 40%: households contribute about half and businesses the other half, he said, noting that this is partly due to businesses not paying dividends. “We haven’t seen a sharp drop in the savings rate due to overconsumption. Within consumption, more people are starting to borrow.”

In a country of 1.4 billion people, consumption habits also vary by region.

Oliver Wyman’s survey of 1,000 Chinese consumers in October found that those in the smaller third-tier cities had the lowest average Singles Day budget, but showed greater availability than those in tier-one cities (such as Beijing ) to purchase over-the- brands or inexpensive products during the shopping event.


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