Qin Shuifeng, 30, who lives in the suburban district of Jiading, went to a branch of the Postal Savings Bank of China in 2016 to seek a loan for home improvements.

The lender granted her and her husband a credit line of 1 million yuan (US$148,600), of which they drew 600,000 yuan, with an interest rate 10 percent higher than the benchmark rate.

To secure the loan, the family pledged its house as a collateral.

A friend of hers, Ma Hui, who works as an accountant at a foreign firm in Shanghai, also resorted to banks for help when she ran into financial difficulties. Unlike Qin, she didn’t use tangible assets as collateral, relying on her creditworthiness instead.

Ma’s unsecured product in banking is known as a “credit loan,” which is designed to meet the needs of people who have good credit to buy consumer goods or pay for services.

The experiences of Qin and Ma epitomize aspects of the booming consumer credit market, with banks, consumer finance firms and financial technology firms all piling into the fray.

The sector, however, remained a hard nut to crack for a long time. Pioneers like a Czech company called Home Credit blazed the way.

Home Credit entered China in 2004 and set up one of the country’s first four consumer finance companies in 2010. It offers a variety of financial packages catering to consumers of various income levels, especially middle and low-income groups.

By working closely with national retail chains such as D.Phone and Suning, Home Credit set up more than 250,000 point-of-sales outlets across China and now serves more than 14 million active customers.

Inspired by the success of this foreign player, many domestic competitors joined the battle, and they have been catching up fast.

BOC Consumer Finance Co is one example. Founded by the Bank of China in 2010, the firm earned a net profit of 1.37 billion yuan in 2017.

In the same year, Mashang Consumer Finance Co, a Chongqing-based licensed consumer credit service provider, made a profit of 578 million yuan, two years after its establishment.

As of January, China had 27 licensed consumer finance companies, according to media reports.

Consumer spending is big business and a key engine of the economy. In 2018, it contributed about three-quarters of China’s growth in gross domestic product.

A recent industry report showed Chinese consumer credit spending had reached 8.45 trillion yuan by the end of October 2018, and its proportion in domestic loans had risen to 6.3 percent. The market is projected to exceed 12 trillion yuan by 2020.

Those are the kind of statistics that whet the appetite of banks, consumer finance companies, Internet giants and peer-to-peer lending platforms.

Domestic banks are now expanding their retail banking segment because of its profit potential. But their services cover only a small part of the population because they favor borrowers who have stable incomes or solid credit histories.

“For me, it’s a different story,” Ma said. “I have to provide reams more information to borrow money from the big lenders.”

Since 2017, Ma has been the client of several commercial lenders, including the Agricultural Bank of China, the Shanghai Pudong Development Bank and the regional Bank of Jiangsu.

Smaller lenders tend to be more consumer friendly. They place weight on borrower’s salaries and benefits package rather than on the status of companies that employ them.

Though Ma had to bear a slightly higher cost for a loan from smaller lenders, she said the application procedures were much easier.

Take the Bank of Jiangsu, for example. Applicants just need to provide documents like ID cards, proof of marital status and income, and reasons for the loan to get up to 2 million yuan, with a repayment term of no longer than three years.

Internet giants like Alibaba Group, Tencent Holdings and JD.com have extended their reach to the booming consumer credit realm for borrowing beyond what credit card issuers or consumer finance firms can serve.

For example, Ant Financial Services Group, an affiliate company of Alibaba Group, launched its virtual credit card service, called Ant Credit Pay, or Huabei, in late 2014. It’s aimed at helping customers pay for big ticket items like household electronics and other expensive products they want to buy on Taobao.com and Tmall.com, Alibaba’s two main online shopping platforms.

The service allows users to pay for online purchases with overdrafts from their Alipay accounts. Users’ credit limits are based on their financial creditworthiness.

Four months after Huabei debuted, another online credit product named Ant Cash Now was offered to Alipay users. It’s actually a kind of micro loan.

Unlike older generations in China, who eschewed taking on debt, millennials seem to have no compunction about borrowing.

The “Z generation,” or those born after the mid-1990s, comprised 86 percent of the 100 million users of Ant Credit Pay at the end of 2016. That is to say, almost one in four millennials was an Ant Credit Pay user.

Wang Kangyin is one example. The 30-year-old is a heavy user of Alipay. In 2017, he bought an iPhone 7 Plus on Tmall.com, which cost him around 6,000 yuan.

He chose to use the Ant Credit pay service because his good credit rating allowed him a zero-interest installment loan for six months.

Wang told Shanghai Daily that for items above 1,000 yuan, he generally considers using Huabei, as long as it doesn’t have any interest rate.

With a Huabei credit line up to 20,000 yuan, he said he feels it’s sufficient for his needs.

“Most of all, it is so convenient,” he explained.

To tap the growing spending appetite of the younger generation, China Telecom, one of the country’s three major mobile communications operators, recently teamed up with Ant Financial Services to offer installment payments for purchases of mobiles.

Data show that consumers are now shifting from buying durables such as cars and expensive electronics to spending more on education and health.

Tmall.com said Huabei-related payments on education products and services surged 87 percent during last year’s Singles Day shopping festival in November. The number of users choosing to pay on installments shot up more than twofold.

That trend has also been cited by Chongqing-based Mashang Consumer Finance.

Competition

The competition is heating up. Home Credit said it has launched a number of new offerings to target emerging spending trends, like education and training, fitness and beauty, and tourism.

Looking forward, the firm said there is still huge unmet market demand, including a largely untapped rural sector.

The central government has issued a series of policies favorable to consumer lending since the second half of 2018.

Still, risks remain. To realize sustainable development, players need to build strong operational and risk control capabilities, either by themselves or in partnership with financial technologies firms.

Shanghai-based Xinyan AI Technology, founded in July 2018, is targeting that area.

Huang Xiangqian, chief executive officer of the firm, said at a meeting of the National Internet Finance Association of China that they aim to help credit service providers better control their operational risks, especially among people who have thin creditworthiness.

“Those groups of consumers are generally not covered by traditional financial institutions, but they do have strong needs for online credit funds,” he said.

Xinyan now offers intelligent risk control services to more than 2,000 online finance platforms and traditional financial institutions, assisting them in making evaluations about the borrowers’ repayment ability.

Artificial intelligence and Big Data are key tools for risk control, industry insiders said.

Last August, Xinyan established a joint project with Shanghai Jiao Tong University to do research and explore applications of artificial intelligence to the finance industry.

China Top Credit Inc, another fintech company, is leveraging its technologies to aid the consumer credit industry.

Last year, the Shanghai-based firm launched a new business line to export its technologies to clients like banks, securities houses and big tech companies.

The consumer finance industry is closely allied with and dependent on technologies, Zhao Guoqing, founder and chief executive officer of Mashang Consumer Finance, said at a recent event in Shanghai.

The company is betting big on technologies leading business development in the next three years. By the end of 2018, Mashang had 900 research and development staff and the number is expected to grow to 1,200 this year.