Consumer Protection Oversights in the Chinese Digital Credit System

Context

From 2014-2017, China’s central bank allowed tech companies to pilot test personal data-driven consumer credit services that were said to contribute to the national effort to build a “social credit system.” 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. There have been limited efforts to assess users’ comprehension of how tech companies are using their data, or analyses of potential risks posed to consumers. These pilot tests exemplify how institutions (including governments) are using non-financial data not only to make lending decisions, but also to grant preferential access to resources including foreign travel visas, hospital treatment, and commercial services including bicycle and car rentals, online dating, and housing rentals for high scorers.

Study Design

This qualitative pilot primarily relied on semi-structured, one hour interviews with Chinese users of the social credit app Sesame Credit, the dominant player in China’s digital credit market with over 500 million users at the time of the study. In addition, the researchers compiled news reports and academic publications on social credit, from both Chinese and English sources.

Results and Policy Lessons

By interviewing Chinese citizens in Beijing and reviewing Chinese news reports and related literature, this pilot study uncovered four overarching concerns with the market-dominating credit service Sesame Credit: 1) consumers’ limited understanding of how their personal data is used in the credit rating process, 2) consumers’ doubt about the security of the digital credit services, 3) limited consumer choice due to high switching costs, and 4) consumers’ discomfort with merging social and financial information. These findings add value to the recent policy discussions on consumer protection and firm-state relationships in China. For a more in-depth results discussion, please see the Results Brief.