Market inefficiencies

China, a global leader in technology, is now a leading fintech innovator with approximately half of the global payments market. In addition to that, it carries out three-quarters of online lending transactions. Consequently, it made inroads in virtual banking with the launch of MyBank. An innovative virtual bank, providing loans to 2/3rd unbanked and/or underbanked small, medium enterprises (SMEs) of China.

MyBank revolutionized SME financing in China by creating an intelligent loan application process. It analyses 100,000 indicators through big data and artificial intelligence, including 3000 loan strategies to approve a loan application. Consequently, it built a “3-1-0” model, which takes 3 minutes to apply for a loan on mobile, 1 second to approve, and 0 intervention.

Introduction

MyBank is a consortium between Ant financial, Fosun Industrial Technology Development Co., Wanxiang Sannong Co., Ningbo Jinrun Asset Management. Therefore, each of them holds a stake of 30%, 25%, 18%, and 16% respectively. It was launched with a registered capital of US$ 645 million.

This consortium-led bank is targeted on inclusive finance, primarily uses technology, data, and channel innovation to solve SME financing difficulties. Further, it provides rural financial services and promotes economic development entities.

The bank is headed by Jin Xiaolong, Executive Director and President along with Hu Xiaoming, Chairman of MyBank and Ant Financial President.

MyBank’s 2-S framework analysis

1. Scalability

• Growth

According to MyBank’s 2018 annual report, MyBank reported a net profit of US$ 96.15 million. Its non-performing loan (NPL) ratio is only 1.3% lower than the national average of 1.89%. Since its inception in June 2015, MyBank has disbursed loans to 12.27 million SMEs. Subsequently, constituting to US$ 290 billion loan amount with an average loan size of US$ 3731. The average cost per transaction is US$ 0.4 as compared to US$ 287 by traditional lenders.

We predict MyBank’s annualized net profits will soar to US$ 140 million in 2020, achieving a growth rate of nearly 42%

To further scale in the market, MyBank launched the Star Plan at the 2018 SME financing summit Hangzhou. This plan aims to boost further financial inclusion mission of the bank by sharing its technological capabilities. These capabilities include AI, big data, and risk management systems with regional and rural financial institutions in China. As a result, the bank intends to serve 30 million SMEs and farmers through cost-effective financing services by 2021.

2. Strength

• Reachability

Ant Financial owns a majority stake in MyBank, which makes the bank advantageous in multiple aspects. For instance, it can leverage Alipay’s customer data as the payment platform controls over 50% of the payment business in China.

According to Twimbit’s analysis, MyBank has created the intelligent loan application process by capturing customer data of 550 million active users on Alipay’s platform coupled with Credit Sesame’s big data credit rating system.

Alipay has a holistic coverage of an individual’s payments, spanning from utility bills, credit card repayments, administrative fines, tuition fees to a complete one-stop shopping needs. Further, Alipay allows shoppers to use facial recognition and fingerprint to verify their identity, adding another layer of customer information gathered at the backend.

In addition to that, Credit Sesame rates customers and small businesses a credit score based on their transactions on Alibaba’s shopping platforms and Alipay’s payment history.

This enormous volume of customer data leveraged from the Ant financials’ network has enabled the bank to train its AI algorithms with over 100,000 loan approval indicators, 100 predicting models and 3,000 loan strategies, building a robust risk management system.

• Technology and people infrastructure

MyBank’s entire technological infrastructure is based on the financial cloud computing platform. It can handle highly concurrent financial transactions, large amounts of big data, and flexible expansion. In addition to cloud computing, its technology suite comprises of AI, big data, and predictive analytics. The bank houses a total of 720 employees with over 281 people hold doctoral degrees. It has 166 people as front-end employees, whereas 554 as middle and back-office employees according to the 2018 annual report.

The widespread application of advanced technologies in the SME financing space has dramatically improved risk management and lowered costs. With these innovations, we can unlock new opportunities for financial institutions and enable them to sustainably serve the needs of SMEs and farmers.
Eric Jing, former chairman of MyBank

Actionable lessons learned from MyBank

• Analyze customer behavioral buying patterns, payment transactions, and credit history using big data to build a robust customer remediation process.
• Incentivize companies for backward integration (e.g., target regional, rural banks, and financial institutions) to achieve mass customer acquisition targets and support financial inclusion mission.
• Create an ecosystem that provides business opportunities for non-banking service providers to promote innovation in banking and financial services practices, debunking incumbent banks’ conventionality