Big tech credit can help safeguard economy from shocks, BIS says

BEIJING • Loans provided by technology giants like Ant Group Co Ltd could cushion economies against market shocks and help support smaller companies during times of stress, according to the Bank for International Settlements (BIS).

Credit extended by the likes of Jack Ma’s mega fintech firm is often based on deep analysis of data and correlates less with the macroeconomic environment — such as local business conditions and house prices — than traditional bank credit based on collateral, according to a working paper. Instead, credit from tech firms depends more on the characteristics of individual

companies, including their transaction volumes and their activity within the tech firm’s own network.

Tech companies have become a growing force in credit markets, using algorithms to trawl through vast datasets to determine credit-worthiness. Ant, the cornerstone of the Alibaba Group Holding Ltd’s empire that’s said to be seeking US$30 billion (RM124.5 billion) in an imminent IPO, scrutinises the buying behaviour of hundreds of millions of users on China’s biggest online malls.

“Their access to big data is not the only potential advantage for big techs over banks,” the BIS said. “Big techs have the further advantage of being able to monitor borrowers once they are within a big tech’s ecosystem.”

Increased availability of credit from big tech firms could help stabilise financing for small and medium enterprises that may find it hard to get bank loans. Credit supply via tech companies is not tightened and does not become more expensive in response to a negative shock to asset prices, as happens with bank credit, the paper found.

The results are based on a dataset of more than two million Chinese firms that received credit from Ant and from traditional banks. — Bloomberg