China’s millennials embrace loans and paying in instalments as microloan industry booms
Chinese e-commerce platform Fenqile users are allowed to pay for items like biscuits in monthly instalments. (Fenqile)
Gone are the days when taking out a loan for anything but a house or car in China was pretty much unheard of.
- Companies that offer microloans can charge an annual interest rate of up to 30 per cent
- Millennials are using microloans because they are convenient and more easily approved
- Experts warn against illegal providers who ask for “nudie selfies” as collateral for the loans
With the rising cost of living, a growing number of tech-savvy Chinese millennials are now jumping onto the buy-now-pay-later bandwagon.
Chinese fintech giants — including Alibaba’s Ant Financial and JD Finance, as well as smaller players like Lexin Fintech — are cashing in on the trend with some even allowing buyers to pay for a packet of biscuits in 36 instalments over three years.
Lexin, which operates online shopping platform Fenqile — which translates to “instalment happiness” in Chinese — lets consumers buy mobile phones, watches, cosmetics, and even snacks on credit and repay the loan in instalments.
For example, a 475-gram box of Oreo biscuits can be bought for about 50 yuan ($10) and paid back in monthly instalments of 2.07 yuan ($0.41) over three years.
The long duration of repayments may sound appealing, but this year, Fenqile users were charged with hefty annual interest rates of over 20 per cent in the 2018 September quarter for the privilege — the maximum legal annual interest rate in China is 36 per cent.
And while borrowing money for smaller items like mobile phones is widely accepted in the West, the practice of taking out loans — let alone microloans — has only recently taken off in China.
Dorrit Chen, Euromonitor International’s Consumer Finance analyst in China, told the ABC that Chinese millennials are now widely embracing microloans to purchase big-ticket items like a new car, all the way down to smaller purchases like breakfast.
‘Pragmatic’ millennials opt for convenience
Dorrit Chen told the ABC that many millennials — in contrast to their parents’ generation who refused to borrow — were now choosing to live by loan rather than other forms of payment options, like cash, for the convenience.
“This trend is not only happening in metropolitans, but also [being taken up by] young generations from small towns,” she said.
According to Ant Financial’s latest research, China now has nearly 170 million people born after 1990 of which more than 45 million have an Ant Check Later microloan account.
Thibaud Andre, research manager at Chinese market research firm Daxue Consulting, said many millennials were using microloans due to the high cost of living.
He said there was also a generational gap between older generations who don’t like buying what they can’t afford and millennials who were “more pragmatic” and opting to buy everything they needed at once.
For example, millennials might choose to buy all the electronic components they need at once — like a computer, speakers, and keyboard — without waiting to save up for each item and buying them one at a time.
Dorritt Chen also attributed the popularity of microloans to the ease of getting loans approved.
She said while younger generations need a minimum wage and stable job to apply for a credit card, e-commerce platforms generally determined loan eligibility using their online shopping data as a credit-rating profile.
Zhima (Sesame) Credit scores for online shopping giant Alibaba are used for profiling. (Supplied)
“Ant Check Later — the [loan service] affiliate of Alibaba — as one of the most popular online credit service providers is a case in point,” she said.
“[It] offers credit from 500 yuan ($100) to 50,000 yuan ($10,000) based on big data analysis from their Alipay account history.
“Buy now pay later makes shopping easier and [more] convenient, which largely boosts millennials’ shopping demand as well as the large amount of delinquencies and subprime loans.”
However, she also pointed to a series of disturbing security risks of applying for a loan with small unlicensed organisations.
‘Nudie selfies’ used as collateral for loans
10 gigabits of photos of nude young Chinese college students were leaked online in 2016. (Weibo: Hulixiaoniangzi)
In 2016, 10 gigabits of naked selfies of 161 young female students holding their photo IDs were leaked online by illegal microloan providers who had asked for the pictures as collateral for the loans.
Most of the victims were young female college students — aged between 19 and 23 years old — from China’s under-developed regions, according to a November 2016 report published by state media outlet China Youth Daily.
The victims told the Daily they were usually approached by the dodgy lenders on Chinese social media platforms such as WeChat or QQ — a replica of ICQ — and that the interest rates and conditions were poorly explained to the chat groups with hundreds of members.
According to the report, the college students usually borrowed between $1,000 to $2,000 with interest rates up to 30 per cent, and lenders threatened to leak the naked photos to their family and friends when they failed to repay the loan on time.
Other young women were given the option to work in the sex industry to pay off their debt.
Chinese consumers are embracing electronic payments like WeChat Pay and Alipay. (Reuters: Mark Blinch)
China’s Central Public Security Comprehensive Management Commission cited one case where Bing Chen, a resident in China’s eastern Nanjing city, received a nude photo of his daughter, Xue Chen, via a text message from an illegal lender.
Xue Chen reportedly sent several nude pictures of herself to receive a 4,000 yuan loan ($800), which jumped to 100,000 yuan ($20,000) in just six months, according to the Commission.
During that period, Xue Chen was pressured to send more nude pictures and videos of herself in order to extend the due date of her repayment.
Despite the Commission’s efforts to crack down in December 2016 on what are widely-know as “naked loan services”, recent local media reports say the notorious practice is still rife on some Chinese social media platforms.
However, Ms Chen of Euromonitor, said the situation has improved since late 2017 when China’s financial regulators enforced new rules forbidding unlicensed organisations and individuals from conducting a lending business.
Lenders were also prohibited from encouraging over-borrowing, abusive debt collection, and stealing customers’ private information, according to the state-owned Xinhua news agency.