Online services shake up China banking world
Non-lenders are now able to conduct online payments, sell wealth management products and offer loans, fuelling fierce competition
Jane Cai and Adrian Wan in Beijing
Online payment services, wealth management products and lending businesses offered by non-bank companies are changing the landscape of the mainland banking sector.
"It has become very difficult to predict the future of the banking sector," said Wang Xiaoming, a vice-general manager of personal banking at Bank of China.
"New technologies are bringing in sweeping changes to the way people manage their wealth, companies finance their operations and banks do business."
The central government would seek to break the monopoly in the banking sector, former premier Wen Jiabao said early last year. Since then 250 third-party payment licences have been issued, allowing non-bank companies to offer online payment services, issue and accept pre-paid cards, and handle bank card transactions through point-of-sale devices.
Thanks to this mushrooming online e-commerce service, an increasing number of payments are being made on platforms operated by internet companies. Transactions made through this third-party non-bank payment system totalled 3.8 trillion yuan (HK$4.8 trillion) in the second quarter of this year, according to market research company Enfodesk.
Over the same period, non-cash payments - transactions through banks and non-bank companies - amounted to 388.5 trillion yuan, according to the People's Bank of China.
The 1 per cent market share of non-cash payments commanded by third-party non-bank systems might appear to be tiny, but the share is set to increase substantially, according to sector participants.
"With the help of big data and cloud computing, internet finance has enormous room to grow because it lowers information asymmetry (democratising the distribution of information and data) to a minimum," said Xie Ping, a vice-president of China Investment Corp, the nation's sovereign wealth fund.
Alibaba was among the pioneers of internet finance services with its third-party payment system Alipay, and the mining of transaction data from its business-to-customer and customer-to-customer businesses.
That data has now been used by Alipay to establish a credit rating system making use of the ability to access massive data sets (big data), through cloud computing (web-based and accessed hardware, networks, storage, services, and interfaces). Alipay is reportedly ready to launch a consumer loan service soon, but the company declined to comment.
The latest expansion of credit services from Alipay follows the launch three years ago of a loan service to small and micro companies which trade through its e-commerce platforms.
At the end of June, it had extended 100 billion yuan in loans and had a non-performing ratio on the portfolio of 0.87 per cent, it said.
The growing presence of Alibaba and Alipay in the financing sector posed a "severe challenge" to banks, according to Hong Qi, the president of China Minsheng Banking.
The medium-sized bank, which focuses on small companies, had 300 billion yuan of outstanding loans to small and micro companies at the end of last year.
Alipay is also the first internet company to offer wealth management products. In June, it launched a service to allow its more than 600 million users to subscribe to the Tianhong mutual fund through their Alipay accounts.
The service attracted 2.5 million users and 5.7 billion yuan of investments in 18 days, resulting in Tianhong becoming the fund with the largest number of subscribers on the mainland, Alipay said.
Tencent, another leading internet company, recently partnered four fund management firms to enable transactions through its WeChat smart-phone messaging application, which has more than 300 million users globally.
To make the competition fiercer, about 1,000 peer-to-peer micro-loan companies across the mainland are matching credit for customers and offering wealth management products. Such lending, which essentially ends banks' middleman role, lets savers lend directly to pools of individuals.
About 30 billion yuan of loans were matched over the system between 2007 and last year, data from the Central University of Finance and Economics showed.
"Confronted with the sizzling competition, conservative banks which just maintain the status quo will ultimately fail," said Jin Lin, an analyst with Orient Securities.
Cash businesses, now dominated by traditional finance, including banks and brokerages, would gradually be taken away by internet finance, which had an edge also in credit risk management and actuarial analysis, thanks to big data's strong analytical ability, Jin said.
"The fight for market share among internet finance players will also escalate and it's difficult to see who's going to emerge as winners. But while the big players are fighting it out, smaller banks could collaborate with smaller internet companies to benefit both parties," he said.
On Thursday, China Citic Bank announced it would team up with telecommunications company China Unicom to launch a "mobile phone wallet" through which mobile phone users can link their devices with a Citic Bank card to make payments.