In a move that can only spell bad news for the traditional banking sector, China’s technology giants such as Baidu, Tencent Holdings and Alibaba, have been looking towards the financial services sector to monetize their large databases of information from millions if engaged users. By creating banks of their own, these tech giants are looking for ways to take advantage of the plethora of data they have at their fingertips on user’s backgrounds and preferences to come up with customized financial solutions that outweigh traditional bank offerings.
Back in 2014, Tencent Holdings, which owns China’s largest social messaging service WeChat, was the first to get a banking license for the aptly named WeBank. WeBank Chairman Gu Min has since stated that the bank’s financial performance has been better than expected, with the bank having extended approximately 160 billion yuan through “Weilidai”, a non-collateral loan that forms the bank’s major product, through November 2016.
E-commerce giant Alibaba Group followed suit, coming up with its own banking arm MYbank, through which it lent 45 billion yuan to customers through February 2016, serving an estimated 800,000 small businesses. Following the successes of WeBank and MYbank, more tech companies are taking up similar models, applying and obtaining licenses for banking businesses to grab the market share, attracting their users through gaming, social networking, and e-commerce platforms.
In December 2016, electronics firm Xiaomi announced that it will launch an online bank called Sichuan XW Bank, of which it will own around 30% holdings. In January this year, Baidu Inc, China’s dominant internet search operator, also announced plans of a joint venture with China CITIC Bank. According to Baidu CEO Robin Li, the plan for the new Baixin Bank (with a tentative 2 billion yuan in registered capital) is to leverage Baidu’s massive user data and internet experience to provide personalized financial solutions to customers based on their individual preferences.
Meanwhile Chinese regulators seem to be encouraging the launch of new private banks as a means of diversifying the country’s current financial system, previously consisting entirely of state-owned financial institutions. The hope is that new banks will dramatically improve the availability of loans for small, private companies.
A clear advantage these technology giants have over traditional banks is their vast databases of customer information. The growing mobile payments ecosystem is offering a quicker, more dynamic method of banking and processing financial transactions that has seen the tech industry cause increasing disruption to the traditional banking model. According to some estimates, total mobile payments volume in China is expected to reach $6.3 trillion by 2020. In 2016, China alone generated over $1,700 in mobile payments per capita, with consumers much more comfortable shopping on their phones and following through with online transactions.
With technology companies pushing forward with alternative banking services, it remains to be seen whether traditional banks can sustain their models without further technological investments. Although traditional banks have fought back by improving e-banking platforms and mobile services, there seems to be a long road ahead if they have any hope of reclaiming the market share that’s been snatched by global tech companies.
Whitepaper: Digital Disruption - Technology's Impact on M&A
Whitepaper: Technology and SEC Disclosure