Baidu Inc (ADR) Makes Strategic Investment in ZestFinance for a Centralized Database

Baidu's investment came after JD's undisclosed investment in the US based fintech start-up last year.

Baidu Inc (ADR) Makes Strategic Investment in ZestFinance for a Centralized Database

By: Abdullah Saeed Qureshi Published:
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Baidu’s investment came after JD’s undisclosed investment in the US based fintech start-up last year

Baidu Inc. (NASDAQ:BIDU) announced on Monday that it has made a strategic investment in ZestFinance, a US fintech company. The investment amount hasn’t been disclosed.

ZestFinance is a Los Angeles based company that specializes in using “machine learning to transform vast amounts of complex data into credit scores.” According to the American company, artificial intelligence specialists at both firms with data scientists will collaborate to “apply Zest Finance’s underwriting technology to Baidu’s search, location, and payment data in order to improve credit scoring decisions in China.”

ZestFinance is one of the world’s leading fintech startup and this collaboration will help the company transform the financial services in China. In major emerging markets like China, there is unavailability of a large consumer credit data, and the industry is still in the early stages of development. For ZestFinance, this will be a huge opportunity to grow and get a competitive edge over its rivals due to unavailability of a centralized credit bureau like the one present in the US. According to ZestFinance, about 20% of Chinese residents use credit cards while 80% still use debit cards or cash to pay for products.

According to an agreement signed between the two firms, Baidu will utilize ZestFinance’s underwriting technology to find out the credit worthiness of its clients. For instance, if a client is searching for computer games using Baidu’s search engine, it can determine the credit reliability of the user through the database.

Douglas Merrill, CEO and founder of ZestFinance commented: “This investment from Baidu will help further our mission, particularly in the fast-growing Chinese credit market. We’re thrilled to work with Baidu to turn search data into credit data.”

Baidu is China’s largest search engine with over 80% of market share. Due to the absence of Google, Baidu holds a monopoly in the Chinese search market. According to Tony Yip, Global Head of Investment, Mergers and Acquisitions at Baidu, ZestFinance’s distinctive ability to study and process composite, disparate data and accurate credit decisions is of essential importance to the Chinese credit market, which is still in the early stages of development and yet to establish a centralized credit scoring system.

Mr. Yip further added, “ZestFinance will be an important technology partner for Baidu going forward, and we look forward to working together to help transform the financial services market in China.”

ZestFinance has raised significant amount of funds in the past few years both from Chinese and international investors. Another major player in China’s e-commerce and tech sector, JD.com (NASDAQ:JD) has also invested an undisclosed amount in the US based fintech firm last year.

Recently, Baidu has been facing controversies over the inaccurate paid advertisements, which also led to the death of a 21-year college student suffering from a rare form of cancer. The Chinese student used a treatment from one of the sponsored links on Baidu for a rare form of disease called synovial sarcoma.

Baidu has already planned to introduce its own database to monitor and evaluate the performance of China’s economy, in an attempt to paint a better picture than the government, which has been criticized by many as “manipulating.”

Senior data scientist Wu Haishan told Bloomberg: “Machine-learning algorithms are utilized to identity the employee, consumer and passersby. The data gathering process will begin from collecting simple location data and will add other elements such as keywords and search destination, according to Baidu.” In addition, the Chinese Internet giant has also made solid statements on the extraordinary capabilities of its data scientists to make accurate estimates about almost everything ranging from “shopper’s purchasing intent to staffing levels in a factory.”

The partnership is likely to be fruitful for both ZestFinance and Baidu. The former would be able to enter one of the world’s most lucrative markets through the partnership, while the latter will have a competitive edge in the Chinese data market. It will be important to see how things pan-out when the system is established and fully implemented according to the plan. The proper execution of the centralized database is necessary for both Baidu and ZestFinance.