Welab developed a risk control system in Hong Kong called "Wedefend", using proprietary big-data analytics technology to assess risk, creditworthiness and interest rates.
He said some major elements have been improved to adapt to the mainland market, especially data source.
"The basic concept is identical, but we also made some major modifications," Loong said.
"The difference lies in the data source, which is much more diversified on the mainland. We will look into mobile data, personal behavior, transactional and consumption data."
Moreover, they've carefully chosen college students, a homogeneous group, to run the first product and limited its initial foray of no more than 6,000 yuan.
One advantage of this group is that the students have "a lot of data online", while a maximum 12-month term ensured that repayment became due before graduation.
"A qualified client source is a better risk-control method than a high penalty," said Loong. The company's penalty for those who fail to pay the payment on time is only 100 yuan each loan.
Besides data mining, there are other alternatives. Qufenqi, a Beijing-based installment payment platform also targets university students, using calls and face-to-face visits to examine borrowing qualifications.
It seems that the method worked because its bad debt ratio is only 0.01 percent - much lower than the industry average.
Li Zhigang, vice-general manager of Shenzhen-based P2P lending platform Touna.cn, believes that such a model can't support a long-term development. "A smarter move is to rely on a systematic, standardized and digitalized model to control risk," he said.
Li's company has begun using big data to establish a "black list" of applicants and is working hand in hand with a credit-information service company. No matter which method a company adopts, the mainland's Internet financing industry is attracting greater attention because of its huge market on the mainland. The P2P market alone was estimated at $48 billion in 2014.
"Thirty-six percent of mainland people had borrowed money in the past 12 months, but only 9 percent took a loan from banks," said Loong. "The rest turned to other sources, such as friends or families."
As Internet financing is burgeoning, so is the credit-rating market. Industry experts estimate the market size of the mainland's personal credit reference at above 100 billion yuan although its current size is only about 200 million yuan.
