Success stories about digital credit systems in the developing world often focus on how these services enable financial inclusion of traditionally “unbanked” populations. However, the growing use of non-financial data to determine credit scores is a concerning trend that may infringe upon the civil liberties of users who are unaware of the surveillance they enable in providing this data. These risks are particularly prevalent in China, a country with still-nascent data protection and digital privacy laws and a tradition of pervasive digital surveillance of its citizens and controlled speech. Digital credit in China is experiencing exponential growth, and the dominant market player, Sesame Credit, now has a user base of over 500 million people.
Social credit is meant to provide a comprehensive rating of citizens’ behavior in everyday life by rating more personal data such as who their friends are, what products they buy, which websites they visit, and offline information that may be considered off-limits for credit scoring in other parts of the world. This all-encompassing form of credit provides an example of how non-financial data are being used not only to make lending decisions, but also for preferential access to resources for high scorers including foreign travel visas, hospital treatment, bicycle and car rentals, online dating, and housing. In the two years that China has allowed pilot testing of its personal data-driven “social credit system,” there have been no qualitative studies of users’ comprehension of how they are being evaluated, or of what consumer risks are posed in this under-regulated new form of credit evaluation.
Through semi-structured, one hour-long interviews with Chinese users of the social credit app Sesame Credit, this study uncovered consumer protection concerns that have been overlooked in foreign and domestic media coverage of this new form of digital credit. During Summer 2017, PhD student Shazeda Ahmed conducted interviews in Beijing with seven Chinese citizens who work for NGOs or in related industries  . While this did not allow for the research team to explore the consumer protection concerns that the most socioeconomically disadvantaged users may face, these interviews nonetheless presented a rich picture of how well-educated users are still highly uninformed about the ways their personal data are being used.
During the duration of this six month pilot, Shazeda and her collaborator, Jael Makagon, continuously consulted news reports on social credit, with Shazeda focusing on Chinese-language materials and Jael on English-language sources, including academic publications.
Results and Policy Implications
One objective of this pilot study was to challenge the media myth that Chinese social credit users accept the risks of the social credit system without raising concerns about consumer protection. The in-depth semi-structured interviews revealed four overarching concerns and unanswered questions:
1. Users admit that there are major gaps in their comprehension of how Sesame Credit works: In general, it appeared that users’ understandings of the criteria by which they are being assessed arise from folk perceptions they have developed of how the service works, rather than from Sesame Credit’s user interface or other official company sources. In fact, four of the respondents have never viewed the in-app visualization of the five overarching data categories that determine their credit scores.
2. Many users still find banks to be more secure: Some interviewees raised concerns about the shortcomings of Sesame Credit and the mobile payment app it is bundled with, Alipay, when compared to traditional banks. One respondent noted that there are people who have high enough Sesame Credit scores that they can take out small loans using Alipay’s consumer credit product, but then have been rejected from receiving the same loan amount from banks. This led the respondent to question how meaningful the company’s scores are as financial indicators of the probability of default. While most respondents admitted they have come to hardly ever interact with their banks because of their reliance on fintech, they seem divided on the extent to which they can fully trust Ant Financial (the firm that runs Sesame Credit/Alipay) as an alternative.
3. Market capture could leave consumers with no alternative: Interviews with six regular users and one intentional non-user of Sesame Credit made it clear that the network effects of adopting this service are rapidly reaching the point at which lock-in might begin to make it difficult for people to opt out. This is particularly troubling given that there are few competitors to Ant Financial, which dominates the mobile payment market in China and which serves over 600 million users on the Chinese mainland.
4. Users do not want to mix social media and financial information: All seven respondents dislike the attempts that Alipay and Sesame Credit are making to resemble social media platforms. One active user of Sesame Credit stated that she does not add her real friends within the app because she does not think this is relevant information for Ant Financial. Remarkably, one male interviewee stated that “if WeChat [China’s biggest messaging app] were to do this, that would be extremely terrifying,” unaware that WeChat’s host company Tencent is currently beta-testing their own social credit app that will likely draw upon users’ social media data for scoring purposes.
The results of this pilot study present policy implications for consumer protections and firm-state relationships in the development of China’s social credit system. The issue several respondents raised about the difference between Ant Financial and traditional banks is extremely salient at the moment: citing concerns about privacy, data overcollection, and conflicts of interest, China’s central bank decided earlier this year that it would not grant official licenses to Ant Financial and the other eight private companies that were originally given permission to conduct social credit pilot testing in 2015. A better understanding of how citizens view fintech companies and banks in comparison to one another, and of the limits of social credit data in predicting financial risk, are imperative for policymakers to grasp.
The tension between fintech companies and regulators also extends to the Cyberspace Administration of China, which announced over the summer that it would be conducting a privacy audit of Alipay, WeChat Pay, and a number of other popular Chinese apps that collect sensitive user data. The issue of digital privacy is slowly becoming a more common topic in Chinese academic and policy discourse, and is increasingly becoming a concern that the state must address as security breaches and data black markets proliferate in China.
The complaints about how Alipay and Sesame Credit are trying to adapt features of social media also raise questions about which laws will apply to the platform as it expands its services beyond fintech. If users are uncomfortable with or even resistant to adding their friends to their Alipay/Sesame Credit accounts, yet come to realize that this has a material effect on their scores, this could challenge the scope of what data the company should be allowed to collect for scoring purposes.
*Shazeda spoke about these findings and the Chinese social credit system on a MERICS podcast. Click here to listen!
April - November, 2017
 A sudden broader tightening of domestic policies in China, with particular stringency of rules concerning NGOs, prohibited Shazeda from securing interviews with original planned contacts.
 Nectar Gan, “Why foreign NGOs are struggling with new Chinese law,” South China Morning Post, 13 June 2017.