(Editor’s note: After this blog post was published, China’s central bank ordered a halt to the issuance of virtual credit cards pending a review. To read a story from The New York Times with more information on the bank’s actions, click here.)
In cooperation with Alipay, China’s leading e-payments provider, China’s CITIC Bank next week plans to begin issuing one million virtual credit cards, for the first time approving the creditworthiness of applicants based solely on the consumers’ online shopping histories.
The credit card is a virtual card that can be used on e-commerce platforms that accept CITIC credit cards, Alipay said in a statement. It can also be used at offline retail outlets that accept the Alipay Wallet app as a payment method. Cardholders can also obtain a physical version of the card from CITIC Bank and use it like a regular credit card.
The process of applying for the card has been streamlined. Instead of filling out and mailing forms to the bank, consumers can sign up with their mobile phones using Alipay Wallet. CITIC Bank will assess a user’s creditworthiness and establish individual credit limits based on information from Alipay on the applicant’s online shopping behavior. The minimum credit limit is RMB 200 ($33).
Alipay officials said the approval process will take less time than conventional credit applications, although they did not offer a timeframe. The first batch of one million credit cards are expected to be rolled out starting next week.
Alipay and CITIC Bank plan to develop a risk-management system by combining data from Alipay’s vast real-name registered user base and users’ buying histories with CITIC Bank’s credit risk management techniques, said Alipay. Zhong An Online Property Insurance Co., owned by Alibaba Group, Tencent Holdings and Ping An Insurance, is underwriting the program.
Alipay, which is part of the Alibaba Group-affiliated Small and Micro Financial Services Group, have started offering consumer financial services and small business loans in a challenge to China’s staid, state-owned banking institutions. Alibaba Group is China’s largest e-commerce company.
Last year, together with Tianhong Asset Management, Alipay launched the Yu’e Bao financial investment platform that allows consumers to invest their spare cash in a money market fund offering a higher return than bank savings accounts. As of mid January, Yu’e Bao had RMB 250 billion in assets under management and at the end of February, Yu’e Bao had 81 million users.
Small and Micro Financial Services Group also doles out business loans to vendors on Alibaba Group’s vast Taobao Marketplace online shopping website based on online store transaction histories.
On Tuesday, China said it will launch pilot programs to test the development of private banks in four Chinese provinces and municipalities. Small and Micro Financial Services Group said it plans to apply for a private banking license in partnership with Wanxiang Group, an auto parts manufacturer based in Alibaba Group’s hometown of Hangzhou, China.