HK credit rating system needs to catch up with the times

January 23, 2018 11:03
Third-party payment platforms such as Alipay have already migrated to more profitable financial services from retail payment businesses. Photo: Bloomberg

The People’s Bank of China has accepted an application to set up a credit checking platform from a group called Xinlian, which is led by the National Internet Finance Association of China.

This marks a milestone in the development of the nation's financial sector because so far credit checking is basically done by the central bank, which aggregates data from various banks and financial institutions and then makes it available to banks and other financial institutions to assess loan risks.

Meanwhile, technology giants such as Alibaba and Tencent are making inroads into the financial services market.

Internet finance transactions accounted for 41 percent of third-party payments in the second quarter of last year, according to data from iResearch.

This shows that third-party payment platforms such as WeChat Pay and Alipay have already migrated to more profitable financial services from retail payment businesses.

Hong Kong, on the other hand, seems to be lagging behind as its finance sector continues to rely on traditional methods of credit assessment.

Assessment of corporate creditworthiness is largely covered by Commercial Credit Reference Agency (CCRA), which was jointly established by the Hong Kong Association of Banks (HKAB) and the Hong Kong Association of Restricted License Banks and Deposit Taking Companies (DTCA).

CCRA collects information about the indebtedness and credit history of business enterprises and makes such information available to HKAB and DTCA members for the purpose of granting, reviewing or renewing credit.

For individual creditworthiness, TransUnion runs a data bank that contains credit information of 4.95 million consumers in Hong Kong, such as credit cards and mortgage loans, collected from more than 100 banks and microfinancing firms.

Hong Kong has become a leading financial hub in the region because of its openness, flexibility, free capital flow, low transaction costs, sound legal framework and stable political environment.

Mainland China, on the other hand, is witnessing lots of innovations in the finance sector, thanks to the huge strides it has taken in the fields of artificial intelligence and big data technology. The same thing is happening in other countries.

But Hong Kong appears to be slow in riding the new trend. For instance, while behavioral data has proved quite helpful in assessing a borrower's credit profile, most banks in the city still rely only on traditional income and credit payment records of loan applicants.

Hong Kong is gradually losing its competitive edge.

This article appeared in the Hong Kong Economic Journal on Jan 22

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]


Chairman of FinTech Committee, Smart City Consortium