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Baidu invests in ZestFinance to develop search-powered credit scoring for China


By Jon Russel for

Baidu has made its second investment in a U.S. fintech company inside a month after it put an undisclosed sum of money into ZestFinance, a big data firm specializing in credit scoring. Baidu, which operates China’s dominant search platform, took part in a $60 million round for payments firm Circle in June.

The deal is part of an agreement that will see Baidu use ZestFinance’s technology to develop a credit scoring platform based on its search data. That’s important in a market like China where traditional credit systems are broken. There’s precious little formalized credit history data while many people don’t use banks heavily or are unbanked. With the internet becoming mainstream in China, which has the largest ‘web population’ on the planet, new opportunities to vet and verify potential customers for credit have emerged.

“China interests me from a mission perspective,” ZestFinance founder and CEO Douglas Merrill told me in a phone interview. “There are a lot of people who deserve credit but live in a cash economy [with] no formal banking service to serve them.”

“ZestFinance’s unique ability to analyze and process complex, disparate data to make accurate credit decisions is very valuable to the Chinese credit market, where a centralized credit scoring system has yet to emerge,” added Tony Yip, global head of investment, mergers and acquisitions at Baidu, said via a statement.

“We look forward to working together to help transform the financial services market in China,” Yip added.

ZestFinance was founded by ex-Google CIO and VP of engineering Merrill, and it uses machine learning and big data to transform information into measurements and signals for credit scoring. It has raised nearly $100 million from investors, with its most recent raise a $20 million Series C round in July 2013. also put money in as part of its strategic partnership last summer.

Today’s news is latest in a number of moves from China’s top internet companies in their quest to narrow the country’s banking divide. Alibaba and Tencent both operate digital banks and micro-loan programs, while Baidu stepped into the banking ring via a partnership with brick and mortar bank CITICZestFinance previously partnered with, Alibaba’s closest rival in China’s e-commerce space, to power the credit service run by its financial arm, which is valued at more than $1 billion. Then there are multi-billion dollar payment services like Alipay (Alibaba) and WeChat Pay (Tencent), too.

A number of fintech startups are stepping up in Asia to offer a modern take on credit scoring using the internet and social media — we recently profiled FinAccel in Southeast Asia — but Merrill told me that this is the first time search data has been used to power credit scoring. That’s something very unique to China, he explained, because Baidu’s search engine has around 80 percent marketshare and is a willing partner. Replicating the service outside of China would be interesting, he added, but challenging to set up.

“Ultimately, you need access to data that can be turned into credit data,” he said.

That would mean Google, if you look at search, which would be more likely to develop its own technology in that space, if it was interested at all. Then there is the issue of disparate languages.

ZestFinance has now secured two partnerships in China, but Merrill said he is happiest to produce the means for large firms to make a difference rather than head into China directly.

“We find China fascinating, we feel like we can help do something to help the world,” he added.

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