China’s banks snoop on citizens to determine credit ratings

New financial rating systems set up by Chinese companies are raising eyebrows over the use of the type of information used to determine scores

  • By Tom Bailey | Friday, October 9th, 2015

China has raised eyebrows with its latest method to provide credit ratings, which involves taking into account nationals' purchasing habits, how they spend their leisure time and political views

Financial rating scores have a big impact on people’s lives, determining their access to credit and at what cost. In many Western nations, how these are determined are subject to strict rules, barring certain information being factored in. China, however, after the People’s Bank of China gave the green light to eight private firms to provide personal credit reference services earlier this year, certain information on citizens, from their purchasing habits, how they spend their leisure time, and even their political views, are being used to determine their credit scores. With the aim of these credit ratings being carried out by commercial companies is to form the basis for a national system by 2020, meaning the troubling direction they are taking now could be instituted nationwide.

People’s Bank of China gave the green light to eight private firms to provide personal credit reference services earlier this year

One such credit rating agency is Credit Sesame, a fermium app created by Alibaba and Tencent, China’s tech giants that run much of China’s social media. This app allows Chinese citizens to find out their credit rating score. With both firms having near complete access to everyone’s social network history and buying habits on Alibaba, such personal factors are incorporated into the score. According to Privacy Online News, what this means is that “If you’re buying things that the regime appreciates, like dishwashers and baby supplies, your credit score increases. If you’re buying videogames, your score takes a negative hit.” Posting out of kilter political statements on social media can also impact credit scores.

Further, friends on social media can also impact someone’s score. As China Daily notes, “Sesame Credit, however, also uses other data to calculate the scores, such as a person’s hobbies, interaction with friends, shopping habits and lifestyle.

The financial arm of Xiaomi, the phone manufacturer, has trialled one credit rating system based upon exercise and consistency. Taking data from a biometric wristband, those “who take up jogging and stick with it are likely to be creditworthy, it concludes, whereas those who exercise for a day or two and then stop again might be equally unreliable with their bills,” reports the Financial Times.

According to Matt Schulz, a senior analyst at CreditCards.com, “many businesses in the U.S. are trying to come up with ways to use everything from rent payment histories to social media profiles to determine the creditworthiness of someone with thin or no credit,” reports CBS MoneyWatch. Indeed, the technology to use someone’s social network of friends was patented in America by Facebook in August 2015. The idea was that the loan risk of a customer could be determined by the credit history of his or her friends on social media.

The worry is that the precedent for credit rating set by Credit Sesame will be adopted nationally, as a government-backed credit indicator in 2015; essentially meaning that the Chinese government would be able to cut off credit to those it deemed political suspect, or even not pursuing the correct healthy lifestyle. Yet despite these fears, many Chinese have been posting on social media their Sesame Credit scores, bragging about their scores.