With China's technology companies tipped to be given licenses to provide banking services, traditional brick-and-mortar banks are venturing out into the online realm to better compete against these new market players.
Chinese regulators are reportedly ready to issue the nation's first batch of three to five private banking licenses next month, with internet giant Alibaba Group among the tech companies slated to receive one, reported Beijing-based China Securities Journal.
It noted that licensees were likely to be private enterprises with sizable funds and manpower, such as Alibaba, and risk-control mechanisms. The report added that a supervisory unit under the China Banking Regulatory Commission was responsible for screening applicants, with one official noting that investors might have to carry the associated risks as China had yet to establish a deposit insurance infrastructure as well as the necessary framework that would allow failing market players to exit the industry.
Alibaba already offers micro-loans to local businesses, dishing out some 28 billion yuan (US$4.57 billion) in loans to 250,000 small- and micro-sized businesses that may not be able to secure loans from traditional banks, the company said in a report last June. And because it is already the country's biggest e-commerce operator, it is able to analyze data from its voluminous online transactions to establish credit viability before giving out loans to borrowers.
The company has also generated billions in assets in less than eight months through its money market fund, Yu'e Bao, which currently holds 400 billion yuan (US$65.35 billion), more than customer deposits held by China's five smallest listed banks, according to Reuters. The report added that similar online offerings from Baidu and Tencent Holdings led to a dip of 1 trillion yuan (US$163.37 billion) in traditional bank deposits last month.
Set up in partnership with Tianhong Asset Management, which owns a 51 percent stake in the company, Yu'e Bao allows investors to vest their shares for cash at any time, differentiating its services from traditional funds, and does not mandate a minimum fund amount. The fund is also integrated with Alibaba's popular third-party e-payment platform, Alipay, which also supports mobile payments.
Brick-and-mortar banks, however, are fighting back with their own online offerings and pushing Chinese authorities to implement policies to pull back the growth of online funds offered by non-traditional banks.
ICBC, for instance, introduced wealth management product that aims to differentiate from Alibaba by accepting customer fund transfers of up to 30 million yuan, Reuters reported. The bank is also limiting its customers from transferring funds to Alipay of no more than 50,000 yuan a month.
Bank of Beijing also tied up with Chinese smartphone maker, Xiaomi, to enable mobile payments and sales of its wealth management and insurance products.
The number of mobile transactions in China climbed 212.86 percent year-on-year to 1.67 billion in 2013, with the value of mobile payments growing 317.56 percent to 9.64 trillion yuan (US$1.58 trillion), according tostats released last week by People's Bank of China. Mobile payments accounted for some 3 percent of the country's overall non-cash transactions last year, which grew 21.92 percent to 50.16 billion and generated 607.56 trillion yuan (US$99.63 trillion).