A $7 Credit Limit: Jack Ma’s Ant Lures Hundreds of Millions of Borrowers
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Keeping a close eye on your balance is basic financial responsibility and maintaining situational awareness against the ever looming threat of fraud. It doesn't matter if you operate on a bank account with $10 or $100,000...if you're not actively accounting for your transactions, that's a personal flaw. The way how I see it: if you don't have the discipline to properly account for even the smallest expenses, you'll never be able to sustain wealth at any significant level.
Anecdotally, a recurring pet peeve encountered is when I'm not provided with a receipt for purchases by default. This happens more often than not at fast food joints and gas stations, and when kindly asked for one, I almost always receive a reaction of either dubious entitlement or disgusted inconvenience, highly correlated to which car I happened to take that day. Although this class of expense is in the noise with respect to my financial posture, I still track them with unwaivering vigilance and find it so ironic when a minimum wage cashier who probably struggles to make ends meet every week disrespects that little piece of paper which enables personal accountability. Stochastically speaking, many of us--including myself--come from humble beginnings.
I do take photos of larger dining receipts, since errors can be made entering the tip after I’ve left. Usually anything over $75 I’ll take a photo.
Seems unnecessary to me to spend much time on the noise since I can see in aggregate if some behavior like eating out is problematic.
- tip added to receipt when I didn’t leave one
- tip increased by $10
- tip entered as total amount
- entire amount charged twice
- credit card number stolen and used at another fast food chain location for one I sometimes visit
I suppose I could have fallen victim a few times on tiny amounts never knowing, but in total couldn’t be more than $100 over the past several years. I also tip pretty well on smaller bills, so that probably reduces my exposure a bit.
I respect the discipline it takes to audit everything, but for me it doesn’t seem worth the effort.
The latency built into modern tooling exacerbates the issue. Credit card apps, mint, etc are decent for accounting (or allow export to an app that is), but they are so bad for dealing with a tight budget that people resort to debit cards and hand-ledgers (under which I am including manual entry of amounts into an app). A sizable safety margin lets you tolerate latency and gives you access to modern, low-overhead, highly capable tooling. Also, the luxury of choosing your own budgets lets you dodge tons of constraint solving right off the bat.
> Stochastically speaking, many of us--including myself--come from humble beginnings.
Then surely you remember the massive cognitive unloading that came when you first built a safety margin, yes?
Even putting all of the above aside, I just don't have much faith in patronizing and finger-wagging as tools for social progress. Even if responsibly consuming credit were trivial at all income levels, I still would still object to business models that encouraged and monetized irresponsibility.
This, it's easy to set-up a direct debit to pay off the entire balance every month in the UK. Every major CC provider I've had a card with has supported it.
The entire financial world is designed to exploit people who are not very good with money.
I buy all my groceries on my credit card, basically get a 30-day, interest free-loan on food all year round.
So yes, this sounds exactly like a western style credit card, just with a micro-credit limit. You get X days of interest free credit, then pay interest if you take longer than that to pay (or set up a fixed payment plan, which some western cards also offer).
Payment companies like Alipay have much lower fees to the merchant, from what I recall.
Even Stripe is below that (1.5%) in EU, going another PSP gets it down to something lower in general. E.g. for Adyen it's 1.1% with 1.1E fixed.
https://ec.europa.eu/commission/presscorner/detail/en/IP_19_...
Also, if you pay the balance in full every month, you don't get charged interest.
If you're disciplined, then you'll use credit cards for every cashless purchase.
It might be an added benefit but in the end you do pay a couple percent on each purchase for that insurance.
I don't know what it's like in other European countries, but I have to enter my PIN code before a transaction can take place (except for very small transactions). So since overcharging or webshops charging my account cannot really happen without my explicit permission, I don't really see how that could happen?
On the other hand, a credit card will give you back 1-2% of that in the form of cash back or other rewards. So in effect you are paying to not use a credit card.
Either system is a valid solution to the problem of fraudulent charges, both have their advantages and disadvantages.
The PIN requirement for usage must be a European thing.
It is. Over here a credit and a debit card work in significantly different ways. In the USA (and probably other countries too) a debit card is just a credit card that's more likely to get declined and gets billed slightly differently. Over here they are entirely different transaction systems as far as I can tell.
US Cash/Debit/Credit: 30%/35%/30%
EU Cash/Debit/Credit: 38%/30%/26%
(If it's 'type of payment method' owned: possible. But if it's volume of currency exchanging hands then it //really// mismatches with my experiences in US vs Northern EU)
Credit cards acknowledge this issue by construction. They assume that there's some overhead (convenience, time, effort, etc.) with paying back a loan, so what they effectively do is allow you to batch transactions together and pay them all back at once. That way, you don't have to log in every time you make a purchase to "refill". Of course, if this "refill" has no overhead cost, then it wouldn't matter.
I understand how micro-finance helps small scale borrowers at a micro level and boosts the economy at a macro level.
What I don't understand is what drives so many consumers into micro-borrowing for basic consumer-level purchase.
Could someone who has used such services explain who and why micro-borrowing was useful for them?
What is concerning is that micro-lending for e-commerce is taking off with services like affirm, which looks like a dangerous economic signal when people are using it to finance purchases under $100 dollars.
basically any major boost in micro-lending in the US would be a warning and not anything to celebrate.
Literally all of the warning lights are blinking (due to intentional neglect and corruption across the board), but the micro-lending bastion is safe for now.
Username checks out...
I remember how anxious I was when, as a student, I didn’t know if a CC charge would be declined or if a debit charge that brought my account balance would fall to -$0.02, thus bringing the wrath of a $29 overdraft fee. The overdraft notice is also a distinctly anxiety-inducing letter.
Microloans are typically offered to people who are not eligible for larger, more traditional loans.
Also, some people who want expensive consumer goods do so for the feeling of the purchase and the feeling of accomplishment, but ignore the nagging reality that they haven’t actually accomplished the purchase until it is paid off.
That's something I was taught neither by my parents, nor at any point through my schooling. It'd be great if folks had this kind of fiscal literacy; but where are we expected to gain that knowledge?
I've heard tell of "civics" courses, back in the day, that taught the basics of what adults are expected to know. But they're long gone now.
There is also this lost art or changing a tire, oil, checking fluids.
Civics wasn’t around when I was in high school but I remember my grandparents and parents had taken something similar.
When I was a child in the 2000s we literally had two weeks where the "normal" curricula went to the wayside and we did two weeks of test prep for the city and state exams. Then I show up to college and my roommates getting into the top medical schools need to be told how to fry an egg.
Yeah, but it turns out unpredictable ACH transaction delays made that harder than I had expected.
- Increased buying power & revenue: The customers don't incur any finance charges. This allows them to purchase $14 worth of products while only paying $7 right away. The merchants that sell the products likely pay a transaction fee. As such, Ant/Alibaba can generate additional revenue from the increased sales and transaction fees.
We used to set up micro-finance co-ops in developing countries. The amount of seed money requested by borrowers was ridiculously small - $100 to set up a corner store in the front room of someone's home, $150 to buy some clothing wholesale and sell it retail door to door.
What we found was that the people who most need credit often just to make ends meet are the ones who are least likely to have access to it. So they resort to "village moneylenders" which is a nice way of saying loan sharks (whose interest rates just perpetuate the cycle). Compare that with people who are relatively rolling in cash who can play all sorts of games with multiple lines of credit and basically work the system in their favour.
I understand that the amounts seem absurdly small, but for some people "I have no money" literally means that they have $0.00, not "I only have a couple of hundred and my credit cards, overdraft, afterpay, etc to get me through to pay day"
From my experience the popularity of loan sharks has a lot more to do with the fact that banks traditionally have seen no value in small, short term loans (which is basically what a credit card transaction is).
Interestingly enough, in many places where we worked and proved that "poor" does not necessarily equate to "unreliable" those same banks are starting to offer microcredit-like[1] loans, presumably because they've crunched the numbers and decided that the volume makes it a viable proposition even if the margin is thin.
[1] "Microcredit-like" because banks' offerings are obviously profit-oriented whereas traditional microcredit tends towards a community development focus
There are quite a lot of regulations surrounding lending in the "developed" world. It's not easy for you or I to just go out one day and set up shop trying to lend money.
Although some recent examples spring to mind where the developed world's financial lending regulations could have been a bit tighter ;)
Some of the loans on the new page are over 4000% APR, and the lenders are (presumably, I don't actually know, but whatever) from the "developed" world.
Micro finances genius was to offload enforcement costs to the community at large, and to focus lending to women.
Today where everyone has cellphones, a lot of the original expenses with lending to small scale borrowers have disappeared, and the cell phone itself becomes an ID.
yeah... not so much in places where you can get a prepaid SIM card with no ID from the corner store for pennies.
I agree with your other points, though - only lending to women and only forming groups consisting of women from the same village/community are absolute bedrock requirements for getting microcredit to work
Is this not because the people can't afford to buy dinner today are equally unlikely (or even more so) to be able to afford to buy dinner and repay a loan tomorrow?
Microcredit works a notch or so above that level, somewhere around what you might call the working poor.
Take the example of needing $ 100 to setup a small restaurant. You probably need tables, kitchen equipment and some ingredients. After you have those you can start selling food and over some time pay back the loan. Once the loan is paid back you have more profit leftover for yourself. So you've become less poor and more able to provide for your own future.
If they are borrowing money for food, and hoping to make it back in the future by working - that's making ends meet. And i agree, in this case, that they need help, not loans.
> If you can repay a loan then you can save. And if you can save, you shouldn't take out a loan.
I wonder if you give this advice to people thinking of taking out a mortgage to buy a house. Or getting a loan to expand a small business. Or buying anything else on credit. It's quite easy to formulate the idea that poor people don't deserve credit, particularly when credit for you is so available you can't really imagine what it would be like for it not to be available.
There is quite a romantic idea that ignores many realities that if everybody works hard and saves their money they can "make something of themselves" and possibly give their kids a better life. The problem is that in many parts of the world if you work hard and save your money you may - if you are lucky and healthy - manage to stay in the same spot or else move imperceptibly up or down a degree. I don't think that's fair.
"HuaBei" works like the credit card, if you pay within the 1 month, you don't need to pay interest.
There are the following reasons encourage people to use this.
- 1) You get cheaper product (not a lot, but still cheap)
- 2) If you use this HuaBei and pay off on time, you'll get higher credit score which is called 'sesame credits'. With it, you can go to the hotel without paying in advance. Or you can use it as the finance statement when applying VISA.
- 3) Ant finance also have funds products. The most used one is 'YU'E bao'. It is monetary fund. The yearly interest rate for now is around 2.3%(used to 4%). You can deposit and withdraw any time. If I don't pay the product with debit but the "huabei", after 1 month I got more money.
(I feel like I should write a blog about this ;)
For me, the reason 2 is the most important one.
That is how hundreds of millions of people do it here in Europe.
(Yes, I'm a secondhand car person myself, but heavy car commuters tend to buy new or even lease because the quality of car affects the quality of life for hours a day)
1. "Nearly half of Huabei's users are under the age of 30 [..]". There is value in teaching young people to budget well and save for what they want or need. There's this feeling of "hard earned, well looked after" with many of the items I personally own.
2. Whilst the intention is supposedly good, I feel as if this is really a move towards putting large amounts of the Chinese population into a debt for (mostly) meaningless purchases. This isn't somehow generating more money for the average person, this just traps them into borrowing from their future selves at a worse rate. This doesn't lift people out of poverty, if anything it traps them in it.
3. "As of June, 1.6% of Huabei's outstanding loans were more than 30 days past due, while 1.2% were more than 90 days overdue, according to a document for bond investors.". That's 1% overdue every month! They compare this to credit cards, but it's a false equivalency. People getting credit card loans a) typically plan to get something that will hold value and b) there are fewer of these loans approved.
And lastly:
""Only at the end of each month did I realize how much I've spent," Ms. Zhang said, adding she made many impulsive purchases on clothes and cosmetics because the credit was available to her. She said she has never been late with her repayments."
Therein is the major problem, people purchasing non-essential items without care because the money is readily available. If only she had waited just a single month she could have saved money, even whilst purchasing the same items.
Micro-loans could be mostly considered as a poor-people tax. A communist backed newspaper should know better.
In the U.S. it offers another layer of security, flexibility, builds credit, and earns rewards compared to using debit or cash, and is interest free as long as you pay on time.
More than 1% aren't per month, every month - and the Chinese economy is currently relatively stable, imagine a 2008 happening to those people. Also remember that some people may be borrowing to pay off the previous short-term loan - or are at the very least stuck continuously having to borrow from their future selves just to keep things afloat, each pay check evaporating as soon as it comes in. There's going to be a lot of people now stuck in a dangerous loop of dependency on these short-term loans at the best.
> I do wonder what the advantage is for using credit in China.
I think the advantage is small when compared to disadvantage. The advantage is small - you could get a good friend to lend you $10 to see you through a particularly bad month. The advantage of a friend is that they'll also tell you when enough is enough, when it's ongoing, when they believe you're borrowing for the wrong reasons.
> In the U.S. it offers another layer of security,
This is just a band aid for a much worse problem - that the average person in the US is living pay-check to pay-check, without money saved.
> flexibility
This is literally the only good reason I can think of for it's existence, but it's almost impossible to filter for these people.
> builds credit
Again, this shouldn't need to be a thing.
> earns rewards compared to using debit or cash,
The fact that cards don't earn rewards is an oversight on their part. The bank I'm with has two accounts, one is "easy access" and one is "savings". I can transfer from one to the other very easily, but I can only pay out of the "easy access" directly. If I keep money in the "savings" account for a period of time, I am rewarded with high interest, i.e. I am rewarded for saving money.
Other shops in the local area also have "loyalty" cards which also reward purchases of certain items (it helps them predict what stock they will need and to shift excess stock if required, as well as collect data about customer purchasing habits).
> is interest free as long as you pay on time
Smoking is harmless as long as you only ever do it once. The point is that people get trapped and reliant on these loans, at a cost.
It's designed to make fish want to bite it and then the hooks dig in to them. Trapping them.
In american english, lure has negative connotations - like pedophiles luring children with candy or human traffickers luring vulnerable people with the false hope of a better life elsewhere.
I don't think people who read the headline came away with a positive view of Ant's $7 Credit Limit.
"FedEx lures sellers with two-day air shipping after Amazon contract ends"
"Cloudflare goes big on serverless with new CLI, lures devs with free tier"
"Shopping for nostalgia: Toys R Us lures Michigan fans to Canada"
"A ‘Honking Big’ Cave in Canada Lures Geologists to Its Mouth"
"North of Netherlands Lures Elon Musk with Billboards"
Is two-day air shipping bad for sellers? Is signing up for Cloudflare's free tier a mistake? Is Canada a dangerous country full of toys and geologist-swallowing caves? Will visiting the north of the Netherlands be the end of Elon Musk?
That's the wet dream of western credit card companies.
Sure in some perspective getting people not used to debt at all to easily overspend might be called empowering from a twisted neoliberal point of view.
Seeing everything from a US-centric view really not make sense here, since nothing comparable to this exists in America, and because microloans like this are a lot more meaningful to people in other parts of the world.
If you want to say that QE is "neoliberal" and that this is sort of like QE except bottom up instead of top down, I guess I could see your point although I would argue that it's convoluted because the bottom up vs. top down is a major distinction that no longer makes the two similar.
Also, I disagree that predatory lending is a cornerstone of the modern Democratic party, but that's neither here nor there.
In order to encourage a failing economy, trap more consumers in debt (China has an outrageous 400%+ total debt to gdp) and prevent unrest, CCP is giving a $7 credit limit to its 700M people in poverty. Whether it works or not is debatable, as Chinese consumers are already neck deep in debt and hurting from rising inflation
It's even worse when it comes to international news. How many times has china "conquered the middle east" or "colonized africa"? A lot more than you think if you follow the news.
"China's latest conquest: Middle East power broker - commentary"
https://www.cnbc.com/2018/06/28/chinas-latest-conquest-middl...
China is "colonizing" africa.
"China raises fears of 'new colonialism' with $60 billion..."
https://www.telegraph.co.uk/news/2018/09/03/china-invest-60-...
When we actually invade and conquer the middle east, the media portrays it as "bringing freedom". When we actually colonize africa, the media portrays it as "aid".
Of course it isn't just the west spreading propaganda, china does it also. It's why it comes to geopolitical or controversial events, you need a wide variety propaganda to get as honest an assessment as possible because every side lies about something and is honest about other things.
In this day and age, I don't think a name is guaranteed to tell you much about a person. It's a bit fallacious to say "she has a Chinese name, so she's probably not against China."
She could be from Taiwan or Hong Kong, both of which have plenty of reasons not to like China. She could also have been born and raised by Chinese, Taiwanese, or Hong Kong parents in any other country.
I have an incredibly "white" name, but I'm ethnically Korean. I know I'm an outlier, but it gives me first-hand knowledge that using names to assume things about people's ethnicity (and from that, their beliefs) is not a good tactic.