Consumer finance is poised to become the next gold mine of opportunity in China's booming financial technology sector, said a senior executive from LexinFintech Holdings Ltd, a leading online consumer finance platform for educated young adults in China.
In a dialogue with Professor Christopher J Malloy and Professor Lauren H Cohen at Harvard Business School earlier this week, Lexin's chief financial officer Craig Zeng spoke to the audience about the fintech market in China, as well as how Lexin is leveraging advanced technology to serve this largely untapped market where demands for consumer financing are burgeoning.
Zeng said there is a paradigm shift in the technological scene where the next cycle of growth may be driven by ideas hatched from China.
China's consumer finance market is projected to grow to $1.6 trillion by the end of 2020, which is equivalent to the GDP of Mexico, representing a compound annual growth rate of 18 percent, said Zeng.
However, despite the huge demand for consumer financing, only 28 percent of Chinese consumers have credit ratings of any kind, significantly lower than the 86 percent of the US. This lack of credit infrastructure has caused many individuals in China to have unattended credit needs, especially in the educated young adult population. Zeng attributed this to the lack of credit infrastructure and the loan process at traditional financial institutions.
"Traditional financial institutions rely on a credit rating system from the central bank to evaluate loan applications. But those who have credit records are usually individuals who already have a stable income and hence don't require consumer financing," Zeng said.
In response to this issue, Lexin has adopted a forward-looking approach by using a combination of big data and artificial intelligence to assess a consumer's credit worthiness. The company relies on its proprietary risk management Hawkeye, which processes more than 1,000 decision rules and over 7,5000 data variables to generate an assessment within seconds.