Loans provided by technology giants likeAnt Group could cushion economies against market shocks and help support smaller companies during times of stress, according to theBank for International Settlements.
Credit extended by the likes of Jack Ma’s mega fintech firm is often based on deep analysis of data and correlates less with the macroeconomic environment — such as local business conditions and house prices — than does traditional bank credit based on collateral, according to a workingpaper. Instead, credit from tech firms depends more on the characteristics of individual companies, including their transaction volumes and their activity within the tech firm’s own network.
Tech companies have become a growing force in credit markets, using algorithms to trawl through vast datasets to determine credit-worthiness. Ant, the cornerstone of theAlibaba empire — is seeking $30 billion in animminent initial public offering — scrutinizes the buying behavior of hundreds of millions of users on China’s biggest online malls.
“Their access to big data is not the only potential advantage for big techs over banks,” the BIS said. “Big techs have the further advantage of being able to monitor borrowers once they are within a big tech’s ecosystem.”
Increased availability of credit from big tech firms could help stabilize financing for small and medium-sized companies that may find it hard to get bank loans. Credit supply via tech companies isn’t tightened and doesn’t become more expensive in response to a negative shock to asset prices, as happens with bank credit, the paper found.
The results are based on a dataset of more than two million Chinese firms that received credit from Ant Group and from traditional banks.
— With assistance by Sharon Chen, Lin Zhu, and Edwin Chan
Source: Read Full Article