Chinese Bike-Sharing Services Turning to Credit Scoring Systems?

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*source: publicdomainpictures Many bicycles have flooded China's streets, but these bicycles don't belong to individual people. Instead, they are part of what are called "bike-sharing" services. And now, they are hitting speed bumps in China.

There is lots of concern about this model among people in the startup and venture capital industries. Most think that most bike-sharing services will go bankrupt because they have a poor business model, and their bicycles are just spreading lumps of scrap metal across China. Also, there is lots of cheating the system in online-to-offline bike-sharing services.

Most of these companies have suffered from theft and equipment damage. According to a Forbes report, bike-sharing services have been criticized for being subject to repeated vandalism and theft, and for having constant costs instead of declining costs as the firms expand.

For example, the bike-sharing firm Wukong Bicycle(悟空单车) in Chongqing(重庆), China, officially announced its closure because 90% of its bicycles had been stolen. They closed after just six months of operations with 1200 bicycles, none of which were protected from robbery with things like GPS or user-certification systems.

90% of Wukong's bicycles had been stolen *source: sina But I don't think all bike-sharing services will immediately shut down, as they could have great potential to grow by taking advantage of data about users' offline activity.

China's bike-sharing services are moving beyond the simple sharing economy by using credit scoring systems. Mobile payment systems are the core of this movement. Ofo and Mobike, the two biggest bike-share startups, are operated by scanning QR codes by customers who use a mobile app.

*source: woshipm In China, mobile payment systems have become hubs for taking commercial ecosystems, built online over a decade, offline. Mobile payment is crucial to this offline digitization of new ventures in the sharing economy.

China: A Cashless Society?

Not only do QR payments represent convenience for customers, but they also create new credit pipelines between service providers and users. For example, Ofo employs 'Sesame Credit(芝麻信用),' developed by Ant Financial Group, while Mobike uses 'Qianhai Credit(前海征信),' which belongs to the PingAn Group(平安集团), and Tencent Credit Scoring Service(腾讯信用).

*source: istockphoto Sesame Credit is a social credit scoring system serviced by Ant Financial Group, which is also behind Alipay. It uses data from Alibaba's services to compile its score. The score is used to rank Chinese users based on a variety of factors such as loyalty to the government and brands based on social media interactions and online purchases in Taobao and Tmall. With high Sesame Credit scores, users earn rewards like deposit waivers on bicycle rental services, or even get visa waivers when they travel overseas. Qianhai Credit and Tencent Credit are another companies that use a similar model.

All a user's commercial activities are counted, including when they buy something on Taobao(淘宝), go to work using Didichuxing(滴滴出行), a car-sharing system, or order lunch using the delivery service, Eleme(饿了么).

Sesame Credit Scoring Service These two services create an ecosystem in which credit score affects people's financial lives. When users apply for a loan or credit card, lenders base approval decisions in part on applicants' credit health. The system also helps bike-sharing services to prevent theft and vandalism of their bicycles, because a user's illegal action will cause their credit score to decrease.

Aside from the obvious benefit of preventing damage to the bicycles, these systems also collect various data about consumers that they spontaneously bring to these systems, which collect and analyze information about what people really want when moving from online to offline environments.

"Now China's various 'fintechs,' or financial companies, are using Sesame Credit. People even can use that credit service when they apply for loans at offline banks, not related to the Alibaba group" said Wenxiong Wu, CEO of 91Jinrong (91金融) , the most famous Chinese fintech company, in an interview with me in March of this year. Wenxiong Wu, CEO of 91Jinrong China's fintech companies' movement offline is based on mobile payment systems. However, this change hasn't simply meant the creation of convenient payment environments for customers. In China, mobile payment systems have become hubs for moving commercial ecosystems offline, after these have been built up over a decade online. From online-to-offline to the the offline digitization of new types of retail services, mobile payments covers it all.

A credit scoring system is a great channel for connecting online-to-offline, because it makes it easy to collect people's data through that credit system. This is a reason that Alibaba, PingAn and Tencent focus on the growth of their credit systems. Their targets are offline systems. Many Chinese people ride bicycles when they go to school or work, as it is a cultural habit. Nothing is better than gathering their data.

That's why bike-sharing services can get beyond the sharing economy system by using these new credit systems.

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