Internet finance
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The Next Big Thing

Li Ka-shing’s Tom Group bares plans for ambitious internet finance venture in China

PUBLISHED : Thursday, 26 February, 2015, 1:45pm
UPDATED : Thursday, 26 February, 2015, 1:49pm

Tom Group, the media conglomerate controlled by Hong Kong tycoon Li Ka-shing, plans to step up the expansion of its e-commerce joint venture in mainland China with an ambitious foray into the online finance business.

Chairman Frank John Sixt said in a filing with the Hong Kong stock exchange that Ule, the joint venture established by Tom and China Post in 2010, will launch its online finance and loan products this year.

He expected this diversification by Ule will need deeper “cooperation with strategic partners to drive sales, cementing its market-leading position in rural e-commerce”.

In a filing with the Hong Kong stock exchange on Tuesday, Tom reported that Ule’s gross merchandise volume – the total amount of goods sold on the online retail site – jumped 354 per cent to 6.49 billion yuan (HK$8.17 billion) last year, up from 1.43 billion yuan in 2013, as more merchants in the countryside joined the e-commerce platform.

Supported by China Post’s vast infrastructure, Ule is encouraging rural store owners and villagers to shop and trade through its network of online, offline and mobile retail channels.

At the end of last year, more than 40,000 merchants in 21 provinces in mainland China were doing business through Ule.

Ule’s online finance ambitions will be made possible through partner WeLab, an internet finance technology company that launched the first social, also known as peer-to-peer, lending platform in Hong Kong.

The peer-to-peer lending market on the mainland is expected to reach US$7.8 billion this year, from US$940 million in 2012, according to a report from research and advisory firm Celent.

The connection between Ule and WeLab was made possible last year after Tom joined California-based venture capital firm Sequoia Capital and other investors in investing US$14 million in the Series A funding – the first round of financing from external investors after seed capital – conducted by WeLab.

The mainland currently has about 1,000 peer-to-peer lending platforms, which have increasingly replaced the illegal underground banking system. Big commercial banks on the mainland have always been reluctant to extend credit to small businesses, a void that would be filled by private lending operators.

In a survey of 3,500 consumers across the mainland, consultancy McKinsey found that more than 70 per cent of respondents would open an account with a purely digital bank.

Sixt credited the mainland government’s efforts to modernise the countryside for the growth potential of Ule’s rural e-commerce strategy.

“Riding on the extensive network of China Post, Ule has been able to offer an array of services to rural villagers including concierge services, agricultural product procurement and bill payment services,” Sixt said.

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Retail e-commerce sales in the mainland increased 35 per cent to US$426.26 billion last year, from US$315.75 billion in 2013, according to eMarketer’s estimates. That included all non-travel products and services purchased online through desktop and mobile devices.

Hangzhou-based Alibaba Group Holdings continued to dominate the mainland e-commerce market last year though its retail units Taobao Marketplace and Tmall.com.

The New York-traded company last month reported that its gross merchandise volume hit a record 787 billion yuan last year as its annual active buyers rose to 334 million, up from 231 million in 2013.

There is plenty more room to grow for online shopping on the mainland, according to eMarketer. It forecast retail e-commerce sales on the mainland to reach US$1.01 trillion by 2018 and make up 16.6 per cent of total retail sales, up from 10.1 per cent last year.

Unlike most internet retail platforms on the mainland which target the major cities, Ule has been focused on garnering business from the 90 per cent of the mainland population still not shopping online.

Ken Yeung Kwok-mung, Tom’s chief executive, has pointed out that the next growth engine for Ule will be people in the country’s 700,000 villages who will access the internet for the first time on smartphones.

Data released earlier this month by the China Internet Network Information Centre show that the total number of users accessing the internet through smartphones and tablets reached 557 million at the end of last year. Total online shopping users, however, came in at just 361 million in the same period.

Tom and Ule have also each invested US$2million for a combined seven per cent stake in start-up Rubikloud Technologies, a Canadian retail intelligence firm.

Sixt said Rubikloud will help Ule “deepen its understanding of consumers’ behaviour and offer customised services, as well as provide targeted marketing solutions for merchants”.

He added that Tom will continue to invest in high-growth hi-tech businesses this year.

Tom on Tuesday reported that its losses narrowed to HK$84.88 million last year, compared with HK$550.07 million in 2013, on the strength of its e-commerce business and continued efforts to boost operating efficiency. Total revenue was HK$1.51 billion, down from HK$1.93 billion in 2013.

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