Chinese e-commerce platform Fenqile users are allowed to pay for items such as cookies in monthly installments. (Fenqile)
Gone are the days when taking a loan for anything but a home or car in China was practically unheard of.
- Companies that offer microloans can charge an annual interest rate of up to 30%
- Millennials are using microcredits because it is convenient and more easily approved
- Experts warn against illegal providers calling for "nude selfies" as collateral for loans
With rising cost of living, a growing number of Chinese millennials with technology expertise are entering the buy-now-pay-later movement.
Chinese technology giants – including Alibaba's Ant Financial and JD Finance, as well as smaller players like Lexin Fintech – are profiting from the trend, with some even allowing buyers to pay for a bundle of cookies in 36 installments over three years.
Lexin, which operates the Fenqile online shopping platform – which translates into "happiness of service" in Chinese – allows consumers to buy mobile phones, watches, cosmetics and even snacks and pay the loan in installments.
For example, a box of 475 grams of Oreo cookies can be purchased for about 50 yuan ($ 10) and paid in monthly installments of $ 2.07 ($ 0.41) over three years.
The long duration of payments may seem attractive, but this year, Fenqile users were charged with annual interest rates of more than 20% in the September 2018 quarter for the privilege – the maximum annual legal interest rate in China is 36%.
And while borrowing money for smaller items, such as mobile phones, is widely accepted in the West, the practice of borrowing – not to mention microloans – has only recently taken off in China.
Dorrit Chen, a consumer finance analyst at Euromonitor International in China, told ABC that Chinese millennials are now adopting microcredit to buy expensive items like a new car, down to smaller purchases such as breakfast.
Millennials are pragmatic & # 39; opt for the convenience
Dorrit Chen told ABC that many millennials – in contrast to the generation of their parents who refused to borrow – were now choosing live on loan instead of other forms of payment options, such as cash, for convenience.
"This trend is not only happening in metropolitan areas, but also [being taken up by] young generations of small towns, "she said.
According to Ant Financial's latest survey, China now has about 170 million people born after 1990, of whom more than 45 million have a microlending account Ant Check Later.
Thibaud Andre, research manager at Chinese market research firm Daxue Consulting, said many millennials were using microloans due to the high cost of living.
He said there is also a generational gap between older generations who do not like to buy what they can not afford and millennials that are "more pragmatic" and choose to buy everything they need at the same time.
For example, the millennium generation may choose to buy all the electronic components it needs at the same time – such as a computer, speakers and keyboard – without expecting to save for each item and buy them one at a time.
Dorritt Chen also attributed the popularity of microcredit to the facility of getting approved loans.
She said that although younger generations need a minimum wage and a steady job to apply for a credit card, e-commerce platforms generally determine loan eligibility using their online shopping data as a credit rating profile credit.
Zhima (Sesame) Credit scores for online shopping giant Alibaba are used to create profiles. (Provided)
"Ant Check Later – The [loan service] affiliate of Alibaba – as one of the most popular providers of online credit services is a case in point, "she said.
"[It] offers credit of 500 Yuan (US $ 100) to 50,000 Yuan (US $ 10,000) based on the big date analysis of Alipay's account history.
"Buy now pay then make purchases easier and [more] convenient, which greatly increases the demand for millennials purchases, as well as the large amount of defaults and subprime loans. "
However, she also pointed to a number of worrying security risks of applying for a loan with small organizations without a license.
& # 39; Selfies Nudie & # 39; used as collateral for loans
10 GB of photos of young Chinese college students leaked online in 2016. (Weibo: Hulixiaoniangzi)
By 2016, 10 gigabits of naked self-effacing of 161 young photo ID students were leaked online by illegal microloan providers who asked for the images as collateral for the loans.
The majority of the victims were young university students aged 19-23 from China's underdeveloped regions, according to a November 2016 report published by state media China Youth Daily.
The victims told the Daily that they were generally approached by dishonest creditors on Chinese social media platforms such as WeChat or QQ – a replica of ICQ – and that interest rates and conditions were poorly explained to chat groups with hundreds of Member States.
According to the report, students generally borrow between $ 1,000 and $ 2,000 at interest rates of up to 30%, and lenders threaten to leak the naked pictures to their family and friends when they do not repay the loan. time.
Other young women have had the option of working in the sex industry to pay their debts.
Chinese consumers are adopting electronic payments like WeChat Pay and Alipay. (Reuters: Mark Blinch)
The China Central Public Security Comprehensive Management Commission cited a case in which Bing Chen, a resident of Nanjing, east China, received a photo of her daughter, Xue Chen, through a text message from a creditor illegal.
Xue Chen reportedly sent several naked photos of herself to receive a loan of 4,000 yuan ($ 800), which jumped to 100,000 yuan ($ 20,000) in just six months, according to the Commission.
During that time, Xue Chen was pressured to send more naked photos and videos of herself in order to extend the due date of her refund.
Despite the Commission's efforts to crack down on what is widely known as "naked lending services" in December 2016, recent local media reports say the notorious practice is still plentiful on some Chinese social media platforms.
However, Chen from Euromonitor said the situation has improved since the end of 2017 when China's financial regulators have imposed new rules banning unlicensed organizations and individuals from conducting lending deals.
Lenders were also prohibited from encouraging excessive lending, abusive debt collection and stealing private customer information, according to state news agency Xinhua.