The People's Bank of China is ceding some control over the personal credit reporting business to the private sector, a major step that is set to help small companies and individuals access loans in a system that has traditionally shut them out.
A notice issued by the central bank this week requested eight firms, including those controlled by Tencent Holdings, Alibaba Group Holding and Ping An Group, to prepare credit reporting operations.
The move could pave the way for the full marketisation of the mainland's 100 billion yuan (HK$124.7 billion) credit reporting industry, which has been dominated by the government.
The PBOC would give the companies six months to prepare these operations.
The central bank operates a personal credit reporting service with a store of loan and credit-card information. But that system is limited to users within the formal banking system and fails to capture unbanked citizens who have never taken out, or have been turned down on, formal loans.
Analysts have also noted that the government system is slow and the technology outdated.
Companies such as Alibaba and Tencent have a wealth of personal credit information derived from the millions of daily transactions between merchants that operate on their online shopping platforms and the shoppers themselves. They have also developed the technology to crunch the data.
The technology firms have started to leverage the credit information to help allocate small online loans to merchants within the system. Alibaba last year said it was developing a US$163 billion market for merchant lending, called Zhao Cai Bao.
Formal support from the central bank for commercialised credit reporting would allow the firms to collect the data and then provide credit scores to individuals for a fee.
"This should really benefit the people who are outside the banking system" and did not have government credit scores, said Ma Tao, a researcher at Analysys International in Beijing. "It is closely related to the opening of the Tencent and Alibaba [private] banks."
WeBank, Tencent's online bank, will reportedly launch on January 18. Four more private banks, including one controlled by Alibaba, are likely to open this year in what has been hailed as a new era of lending focused on small and medium-sized businesses and consumer credit.
Commercialised credit reporting would complement the opening of these private banks, analysts said. Private technology companies are likely to be able to offer cheaper, faster credit reporting than the government.
"Tencent's bank can benefit because it can offer discounted credit services," said Ricky Lai, an analyst at Guotai Junan International. "The problem is the government system takes a lot of time to collect individual credit data."
A report from Hongyuan Securities valued the credit reporting market at more than 100 billion yuan, of which just 3 billion yuan had been tapped.
The other five firms mentioned in the central bank's notice are Shenzhen-based Pengyuan Credit Services, Beijing-based China Chengxin Credit Information and IntelliCredit, and the credit arms of Shenzhen-listed Blue Focus and Yin Zhi Jie.