When Ant Financial, the payments affiliate of the internet group Alibaba, goes public, its potential $120bn valuation could exceed that of Goldman Sachs. Alipay, Ant's mobile payments platform with 520m users, is innovative as well as valuable, having devised a new method of credit rating.
Sesame Credit, Alipay's alternative to traditional credit scores is intriguing. It broadens access to loans in a developing market by monitoring people's buying habits and social circles as well as their credit records. Alipay insists that it does not share personal data with governments without users' permission. But they have plenty of drawbacks nonetheless.
First, they have been designed by technology companies, which have a laxer attitude to data than banks. Banks store enormous amounts of data on the spending and personal habits of their customers but, thanks to regulation and the tradition of confidentiality, they do not exploit it as much as they might.
Tech companies, on the other hand, tend to think they can hold and analyze any data they get their hands on. That includes all the information from people's mobile phones - not only their location but details of their social media circles and the products and services they buy. The potential for abuse is enormous and there is less regulation than in financial services.
Second, there is a perverse incentive built into calculating credit scores on the basis of transactions and activity. One improves a traditional credit score by borrowing less and displaying self-control. Social credit tends to work in the opposite way - it gives users an incentive to buy and rent items through platforms, and to build a circle of active and highly rated friends.
Social credit is thus "gamified" - a tournament in which people must compete to raise their numbers through activity, like a financial version of social networks and mobile games.
Third, in order to build a high Sesame score, a user must keep using Alipay. There is a glaring conflict of interest in being a payment platform as well as a judge of credit ratings-one tweak to a credit score algorithm can push customers to transact more. China's central bank has belatedly realized that giving power over credit scores to rival tech companies has pitfalls.
So social credit must be treated carefully before everyone has a number that determines their reputation as well as their ability to borrow. One essential safeguard is that ownership of the trove of data generated by every digital citizen is held not by governments or companies but citizens themselves. Rather than customers of payment and social platforms ceding control of personal information to brands, they should retain it.