Why Did Alibaba’s Ant Group Lower Credit Limits for Young Users?
China’s financial technology giant Alibaba’s Ant Financial Service Group Co. cut credit limits for some young users on its digital consumer lending platform Huabei in recent days. The firm claims that this approach was intended to “promote more rational spending habits among young people.”
A month after China suspended Ant Group’s $37 billion public listing plan, Ant Group made this move without any notices. Ant Group did not articulate the specific age range of the users being affected, but many young users complained about their monthly credit limits were lowered to 3,000 yuan (around $458.7) on social media platforms.
Huabei, translating literarily to “just spend” in Chinese, is a popular function embedded within China’s ubiquitous mobile online payment platform Alipay. Huabei functions like a digital credit card, allowing users to borrow money without interest for up to 40 days. If users consistently repay on time, Huabei will increase individuals’ borrowing limits. Targeting mainly college students and working adults without established credit histories, Huabei lets consumers borrow with ease and make significant purchases without burden.
Melody Wang, a college student, told Pandaily that her monthly credit limit was lowered to 3,500 yuan (around $535.15) from 5,000 yuan (around $764.5) yesterday even though she always repays on time.
“I relied on Huabei for meals out and luxury goods that I cannot cover with the stipend from my parents,” said Melody. “I don’t think Huabei’s credit restriction plan will work for young consumers as they typically only use Huabei to make significant purchases once a month. People deserve to buy whatever they want once in a while as long as they pay back the loan.”
Huabei’s credit cutting plan aims to resolve Chinese regulators’ concern over young and low-income borrowers’ debt loop. A 2018 survey in China by Rong360 showed that around half of respondents who took out consumer loans were born after 1990.
Last month, Chinese officials published a consultation paper on tightening rules for micro-lending platforms, in which it requires lending platforms to jointly fund at least 30% of any loan they make with banks. According to Ant Group’s IPO prospectus, only 2% of the loans it had facilitated were on its balance sheet by the end of June. Ant Group’s credit businesses had loan balances of 2.1 trillion yuan ($321.25 billion), in which 1.7 trillion yuan was consumer credit. That compares to 8.1 trillion yuan of short-term consumer loans issued by Chinese banks.
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On Dec. 15, Ant Group’s CEO Jing Xiandong spoke publicly for the first time since the suspension of its listing. “At this point, financial technology practitioners need to think about the best way to conduct financing for individuals,” Jing said.
(“Melody” is a pseudonym to protect the individual’s privacy)
