Credit Scoring or Credit Boring: Will Chinese Bureaus Dive too Deep?

by Brian Riley 0

credit score

Credit scoring, particularly the FICO Score, is a fascinating topic.  As a credit underwriter, good scoring can make decisions a breeze.  You plug acceptable ranges, and interest rate parameters, and let the decision making proceed.  Want to increase throughput, tweak a few numbers and away you go.

In the backend, use the same scoring function to decide who should be called, how many times, and when.

Today’s read in Wired talks about the Chinese version of scoring, which takes the empirical rating system to a new, creepy level.

  • But in China, the government is developing a much broader “social credit” system partly based on people’s routine behaviours with the ultimate goal of determining the “trustworthiness” of the country’s 1.4 billion citizens.

  • Social credit is preventing people from buying airline and train tickets, stopping social gatherings from happening, and blocking people from going on certain dating websites.

Now, call me a traditionalist, and I have been out of the dating market for 35 years, but do we want an all-purpose scoring process that covers dating?  I suppose there could be some benefit in ferreting out the good, bad and ugly, but this takes the process a little too far.

  • Given the Chinese government’s authoritarian nature, some portray the system as a single, all-knowing Orwellian surveillance machine that will ensure every single citizen’s strict loyalty to the Communist Party. However, for now, that’s not quite the case.

  • Rogier Creemers, a researcher in the law and governance of China at Leiden University, has described the social credit setup as an “ecosystem” of fragmented initiatives.

Maybe the rubric of “credit scoring” needs to be recast as a government compliance rating, either way, thank heavens for US codification of Fair Credit Reporting and similar rules in other mature economies.

  • Along with providing preferential loans, a high Sesame Credit score – which ranges from 350 to 950 – can result in a huge variety of benefits, like a no-deposit apartment and bicycle rentals.

  • While the system is undoubtedly popular, the line between private social credit schemes and the government is being increasingly blurred.

  • China’s supreme court, for example, shares a “blacklist” of people who haven’t paid court fines with Sesame Credit, which in turn deducts users’ scores until they sort out they pay up.

We did a deep dive on alternative scoring a few years back and though there is some relevance, there was little incremental value, particularly in mature markets.  But, this seems invasive.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group