Shanghai start-up helps more blue collars in status-obsessed China afford an iPhone
China has been the world's top smartphone market since 2011 but not everyone in the fast moving country can afford an expensive iPhone or similar such status symbol, an economic reality that Shanghai-based Omni Prime hopes to up-end.
Through its Paymax app, the start-up is offering small loans to blue collars in China who want to buy an Apple phone, Apple Watch, MacBook or another gadget from the California-based company’s ever-evolving catalogue.
Loans are uncommon in cash focused China, where both buyers and sellers prefer payment upfront. According to Ford Motors, only 17 per cent of car sales in 2013 were financed by a loan, compared to 80 per cent in the US.
Omni Prime chief executive Hu Dan said his firm's customers have often never taken out a loan before.
"I wouldn't describe my customers as subprime – they just have no [credit] data," he told Tech in Asia.
About two in three people in China are not covered by the People's Bank of China (PBOC)’s official credit rating system, Hu estimated, meaning that his app must find its own way of classifying customers.
First-time users in search of a loan must fill out a short questionnaire and provide copies of their official ID and payroll cards. The app then runs a brief background check before calculating the overall fee, as well as the level of interest and an appropriate monthly payment structure.
The company's loans are on average around US$300 per device, Omni Prime said, with the balance paid over 12 or 24 months. Newly released iPhones in China often cost more than double this much.
“We also collect data from users’ social networks, in additional to traditional personal credit history,” Li Xuanyi, the start-up’s chief technology officer, told TechNode.
“All the collected data contributes to the final score to determine the likelihood of fraud and users’ creditworthiness,” he said, adding that the app also monitors users' keystrokes and button presses to assess suspicious behaviour.
To promote adoption of its app, Omni Prime has persuaded around 3,000 gadget retailers across China to suggest Paymax as a purchasing option. Salespeople can receive cash bonuses for getting shoppers to sign up for the service.
While personal bank loans or credit cards have traditionally been hard to get in China, a crop of online lending websites connecting borrowers with lenders have popped up in the last year.
This has helped to create a peer-to-peer lending market worth an estimated 276 billion yuan (US$44 billion), according to a recent report by US bank Morgan Stanley.
The market has scant regulation, and many lenders fail after a few months of operation.
“On average, there were 9.3 new platforms at risk of failing every month in the first half of 2014 [in China], rising to 92 by December” after the services exploded in popularity, the report said.
In January, the China Banking Regulatory Commission announced the formation of a division to oversee peer-to-peer lending. New rules are expected to be rolled out in the second half of this year.