
A $7 Credit Limit: Jack Ma’s Ant Lures Hundreds of Millions of Borrowers - JumpCrisscross
https://www.morningstar.com/news/dow-jones/20191208772/a-7-credit-limit-jack-mas-ant-lures-hundreds-of-millions-of-borrowers
======
aphextron
Absolutely brilliant. There's an entire untapped market of sub prime credit
that will rack up a few dollars balance then be trapped in the minimum payment
cycle forever. Very low risk and huge upside. I'm surprised this hasn't caught
on in the US yet.

------
superkuh
Micro-loans actually seem better than the standard western practice of credit
cards. With a credit card the individual never pays for their own
transactions, they're completely sidelined then pay back the cost + more
later. At least with a micro-loan the individual actually is involved and in
control of the money.

~~~
brnt
When you say Western, you mean American. Almost nowhere in Europe is buying on
credit the norm, but debit cards or credit cards that debit your bank account
directly.

~~~
gexla
They're missing out on a useful feature of credit cards. If you get hit with a
fraudulent transaction, you can dispute the charge to get it reversed. I have
never tried this with a debit card, but the credit card companies make this
much easier than dealing with your bank.

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.

~~~
systemtest
Depends on your definition of fraudulent. If money is stolen out of your
account or your card is cloned then you will get your money back with a debit
card. If the restaurant overcharges you or you are not happy with your webshop
purchase then the bank will not help you out.

It might be an added benefit but in the end you do pay a couple percent on
each purchase for that insurance.

~~~
Vinnl
> If the restaurant overcharges you or you are not happy with your webshop
> purchase then the bank will not help you out.

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?

------
nine_zeros
Serious question

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?

~~~
cookie_monsta
I don't think you're likely to find too many micro-borrowers on this site.

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"

~~~
scarejunba
It's pretty easy in those regions to lend so the fact that loansharks still
dominate seems to indicate to me that they're lending to unreliable borrowers.
i.e. that this is market equilibrium, you cannot compete on margin.

~~~
cookie_monsta
It's easy to lend anywhere. Where it gets complicated is when you're trying to
borrow.

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

~~~
jstanley
> It's easy to lend anywhere.

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.

~~~
hug
It's only not easy if you intend to do it legally. If you don't, it's _really_
easy. I mean like "you can start running payday loans with a paypal account, a
reddit account, and 10 minutes to read an FAQ" level of easy:
reddit.com/r/borrow

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.

------
powerapple
Personally I believe any kind of consumer lending is bad. It is for
consumption, it is for profit, and ultimately creating new liability for
borrowers. Chinese companies are learning from west financial institute for
this lucrative practice, which in long term is bad for Chinese economy. In
short term, it may stimulate consumption. Also as a Alipay user, I didn't
intend to have a Huabei account, it was created automatically, and all my
purchases on Taobao go through it automatically. I didn't bother to change it.
I believe most accounts are created this way.

~~~
pjc50
Consumerism exists largely because of financing. It's pretty much essential
for big-ticket purchases, which is why so many places in the West offer it for
free.

~~~
systemtest
Financing should never be used for a depreciating asset.

~~~
djmobley
This is a poor rule of thumb. In reality these things depend entirely on the
circumstances.

~~~
givehimagun
Agreed - how would anyone buy a car without financing?

~~~
systemtest
You save up around €3000 to buy a second hand car, such as a 2010 Peugeot 207.
After a while, you save up another €3000 and trade in the Peugeot 207 for a
2012 Renault Laguna. You repeat that a couple of times until you are able to
afford a new car or until you are no longer able to upgrade to something
better.

That is how hundreds of millions of people do it here in Europe.

~~~
pjc50
Somebody somewhere has to buy a new car. Europe is not devoid of car loans.
[https://www.ft.com/content/8b6607de-6304-11e7-91a7-502f7ee26...](https://www.ft.com/content/8b6607de-6304-11e7-91a7-502f7ee26895)

(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)

------
bArray
I have several problems with this and I'm concerned by the number of people
promoting this as a good thing:

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.

~~~
AYBABTME
Agreed, the whole article is scary. It seems to suggest that a whole new
generation is being taught self-destructive financial behavior.

~~~
asdff
Is it? People seem to be paying on time and aware of their spending habits as
a result. I do wonder what the advantage is for using credit in China.

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.

~~~
bArray
> People seem to be paying on time and aware of their spending habits as a
> result.

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.

------
lsiebert
Does China have any antitrust protection?

~~~
pjc50
If your business becomes large enough to be a threat to the economic stability
of the government, they will "deal with it" in some extralegal manner.

------
wufufufu
"Lures"? If this was a SV company it would be "empowering consumers" lmao

~~~
yorwba
"Lure" is a nice short word for "attract with incentives" and most past
headlines using the word don't attach any particular connotation:
[https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...](https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=lures&sort=byDate&type=story)
(including when it refers to SV companies)

~~~
humaniania
I think that it is interesting how from a fishing perspective a lure is also a
trap in one sense.

~~~
TomMarius
Is it? A lure is what gets you to the trap, as I understand it (not a native
speaker so I might be bringing that over from my native language)

~~~
austhrow743
A lure is a fake fish/bug/food with hooks on it.

It's designed to make fish want to bite it and then the hooks dig in to them.
Trapping them.

------
jacob019
Any way around the paywall?

~~~
mattnguyen
Search for the title in google and the resulting wsj article won’t have the
paywall.

~~~
jensv
The Google search method did not work for me, but
[http://archive.is/BOsMr](http://archive.is/BOsMr) did.

------
negamax
Did Paypal lured everyone in with their $10 promo?

------
baybal2
Ma is no longer running Alibaba day to day, and he kind of retired long before
him doing it formally.

