Chinese e-commerce platforms Fenqile users are allowed to pay for items like biscuits in monthly installations. (Fenqile)
Gone are the days when taking a loan for anything but a house or car in China was pretty unheard of.
- Companies that offer microloans can charge an annual interest rate of up to 30 percent
- Millennials are using with microloans because it is convenient and more easily approved
- Experts warn against illegal providers who ask for "offere selfies" as collateral for the loans
With the rising cost of living, a growing number of tech-savvy Chinese millennials are now jumping onto the buy-now-pay-later bandwagon.
Chinese fintech giants – including Alibaba's Ant Financial and JD Finance, as well as smaller players like Lexin Fintech – are cashing in on the trend with some even allowing buyers to pay for a package of biscuits in 36 installations over three years.
Lexin, which operates online shopping platform Fenqile – which translates to "installment happiness" in Chinese – lets consumers buy mobile phones, watches, cosmetics, and even snacks on credit and repay the loan in installments.
For example, a box with 475 grams of Oreo biscuits can be bought for about 50 yuan ($ 10) and paid back in monthly installations of $ 2.07 yuan ($ 0.41) over three years.
The long duration of repayments may sound appealing, but this year, Fenqile users were charged with hefty annual interest rates of over 20 percent in the September-September quarter for the privilege – the maximum legal annual interest rate in China is 36 percent.
And while borrowing money for smaller items like mobile phones is widely accepted on the West, the practice of taking out loans – let alone microloans – has only recently taken off in China.
Dorrit Chen, Euromonitor International's Consumer Finance Analyst in China, told ABC that Chinese millennials are now widely accepting microloans to buy big-ticket items like a new car, all the way down to smaller purchases like breakfast.
'Pragmatic' millennials opt for convenience
Dorrit Chen told the ABC that many millennials – in contrast to their parents' generation who refused to borrow – were now choosing live by loan rather than other forms of payment options, like cash, for convenience.
"This trend is not only happening in metropolitans, but also [being taken up by] young generations from small towns, "she said.
According to Ant Financial's latest research, China now has nearly 170 million people born after 1990, of which more than 45 million have an Ant Check Later microloan account.
Thibaud Andre, a research manager at Chinese market research firm Daxue Consulting, said many millennials were using microloans due to the high cost of living.
He said there was also a generation gap between older generations who do not like buying what they can not afford and millennials who were "more pragmatic" and choosing to buy everything they needed at once.
For example, millennials can choose to buy all the electronic components they need at once – like a computer, speakers, and keyboard – without waiting to save for each item and buying them one at a time.
Dorritt Chen also attributed the popularity of microloans to the easiness of getting loans approved.
She said while younger generations need a minimum wage and a stable job to apply for a credit card, ecommerce platforms generally determined the eligibility of credit using their online shopping data as a credit-rating profile.
Zhima (Sesame) Credit scores for the online shopping giant Alibaba are used for profiling. (Supplied)
"Ant Check Later – the [loan service] affiliate of Alibaba – as one of the most popular online credit service providers is a case in point, "she said.
"[It] offers credit from 500 yuan ($ 100) to 50,000 yuan ($ 10,000) based on a large data analysis from their Alipay account history.
"Buy now pay later makes shopping easier and [more] convenient, which largely boosts millennials' shopping demand as well as the large amount of delinquencies and subprime loans. "
However, she also pointed to a series of disturbing security risks of applying for a loan with small unlicensed organizations.
Nudie selfies used as collateral for loans
10 GB of photos of nude young Chinese college students were leaked online in 2016. (Weibo: Hulixiaoniangzi)
In 2016, 10 gigabits of naked selfies of 161 young female students holding their photo IDs were leaked online by illegal microloan providers who had asked for the pictures as collateral for the loans.
Most of the victims were young female college students aged between 19 and 23 years old from China's under-developed regions, according to a report from November 2016 published by the state media outlet China Youth Daily.
The victims told the Daily that they were usually approached by dodgy lenders on Chinese social media platforms such as WeChat or QQ – a replica of ICQ – and that interest rates and conditions were poorly explained to chat groups with hundreds of members.
According to the report, college students usually borrowed between $ 1,000 to $ 2,000 with interest rates up to 30 percent, and lenders threatened to leak naked photos to their family and friends when they failed to repay the loan on time.
Other young women were given the opportunity to work in the sex industry to pay off their debt.
Chinese consumers are embracing electronic payments like WeChat Pay and Alipay. (Reuters: Mark Blinch)
China's Central Public Security Comprehensive Management Commission cited one case where Bing Chen, a resident in China's eastern Nanjing city, received a photo of his daughter, Xue Chen, through a text message from an illegal lender.
Xue Chen reportedly sent several nude photos of her own to receive a 4,000 yuan loan ($ 800), which jumped to 100,000 yuan ($ 20,000) in just six months, according to the Commission.
During that period, Xue Chen was pressured to send more nude pictures and videos of herself in order to extend the due date of her repayment.
Despite the Commission's efforts to crack down on what's widely known as "naked loan services" in December 2016, recent local media reports say the notorious practice is still prevalent on some Chinese social media platforms.
However, Ms Chen of Euromonitor said that the situation has improved since late 2017 when China's financial regulators enforced new rules forbidding unlicensed organizations and individuals from conducting a lending business.
Lenders were also prohibited from encouraging over-borrowing, abusive debt collection, and stealing customers' private information, according to the state-owned Xinhua news agency.