Jack Ma’s US$290 billion loan machine at MYbank is changing Chinese banking, in a harbinger of the financial industry’s revolution

Jack Ma’s online bank is leading a quiet revolution in the way China lends to small businesses, taking aim at a credit bottleneck that has held back Asia’s largest economy for decades.

Using real-time payments data and a risk-management system that analyses more than 3,000 variables, Ma’s four-year-old MYbank has lent 2 trillion yuan (US$290 billion) to nearly 16 million small companies. Borrowers apply with a few taps on a smartphone and receive cash almost instantly if they’re approved. The whole process takes three minutes and involves zero human bankers. The default rate so far: about 1 per cent.

The financial-technology boom that turned China into the world’s biggest market for electronic payments is now changing how banks interact with companies that drive most of the nation’s economic growth. As MYbank and its peers crunch reams of new data from payment systems, social media and other sources, they’re growing more comfortable with smaller borrowers that they previously shunned in favour of state-owned giants.

For China’s US$13 trillion economy, which expanded at its weakest pace since at least 1992 last quarter, the implications could be profound. Non-state firms – mostly small businesses – account for about 60 per cent of growth, employ 80 per cent of workers, and have been disproportionately squeezed by a more than two-year government crackdown on shadow lenders.

“Small and medium enterprises are really the boiler room of the economy,” said Keith Pogson, global assurance leader for banking and capital markets at Ernst & Young based in Hong Kong. “It used to be a segment that banks thought was too difficult and too risky. But now they run their model and work out what the risks are so they feel more comfortable.”