Gloves Off in China as Banks, Alibaba Invade Each Other’s Turf
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China is the scene of a growing rivalry: In one corner is billionaire Jack Ma’s Alibaba Group Holding Ltd., which holds the title as the country’s biggest online retailer. In the other are China’s biggest banks.
This week, Alibaba is launching MYbank, an online lender that will tap into Chinese savers’ record $7.8 trillion of deposits and a banking revenue stream that’s forecast to double by 2020.
Banks have been striking back by pushing into the business Ma pioneered in China, online malls. The moves are blurring the lines between banking and e-commerce as China’s government continues encouraging competition in the finance industry and as Chinese increasingly use computers and mobile phones to bank and shop.
“China’s banks have woken up and realized that the challenge from Alibaba’s entry into banking is for real,” said David He, a Hong Kong-based partner and managing director at Boston Consulting Group Inc. “For them, doing e-commerce is a defense as well as a counterattack.”
Industrial & Commercial Bank of China Ltd., which as the world’s most profitable company dwarfs Alibaba’s net income by more than 10 times, set up a platform allowing retailers to sell the bank’s customers wine, shampoo, appliances and more. China Construction Bank Corp., Agricultural Bank of China Ltd. and others are also getting into the action.
ICBC’s site, called Easy to Buy, is forecasting sales of 300 billion yuan ($48 billion) this year, after tallying 130 billion yuan so far since January. By comparison at Alibaba, its Tmall logged 763 billion yuan in sales last year. JD.com ranked No. 2 at 260 billion yuan.
No Branches
The battle will play out entirely online: The banks aren’t planning any warehousing of inventory, leaving that to the merchants. MYbank and Tencent Holdings Ltd.’s online WeBank, which launched in December, plan no physical branches.
WeBank started its consumer lending in May, where borrowers without collateral can get as much as 200,000 yuan at an annualized rate of 18 percent.
MYbank is to begin operating on Thursday as part of Alibaba’s finance arm, Zhejiang Ant Small & Micro Financial Services Group Co. It’s one of a wave of new private banks being licensed by the government to target small loans and aims to use facial-recognition software to let users set up accounts. Alibaba already has expanded into e-finance, with its Alipay payments system and Yu’E Bao money-market fund.
“For them, doing e-commerce is a defense as well as a counterattack.”
“The potential of web-based services, be it financial or retail, is huge in China, so it’s not too late to join the game,” said Wang Weidong, an analyst at Internet consultancy iResearch in Beijing.
Fast Growth
Construction Bank’s online mall saw a 67 percent surge in transactions last year, while Agricultural Bank had a 57 percent gain, faster than the 47 percent growth at Alibaba’s Tmall and Taobao sites. Bank of Communications Co.’s e-commerce platform sells merchandise and also allows customers to book air tickets and hotels. China Merchants Bank Co.’s online shop offers a 30 percent discount on Prada bags and zero interest and free shipping on purchases made on installments through its credit cards.
“It’s not going to become a profit engine,” said BCG’s He. “But it offers invaluable support to their core business by extending their product line, increasing customer stickiness, getting more data and adapting to the digital era.”
Customer Engagement
ICBC’s mall lets customers also purchase wealth-management products, gold bars, luxury cars, travel packages and even apartments. Developers China Vanke Co. and Evergrande Real Estate Group are selling properties on the Beijing-based lender’s site. Customers can get an almost 10 percent discount on some homes and lower rates on mortgages from the bank. More than 1,000 apartments worth 1.1 billion yuan have been sold.
“China is undergoing an experimental and revolutionary phase right now,” said Joe Ngai, Hong Kong-based head of McKinsey & Co. banking practice. “It’s fair game in China, where everyone is trying to improve on the consumer experience. This is a great thing for the consumer.”
Revenue from online retailing is expected to reach 4 trillion yuan this year, according to the China e-Business Research Center. By year’s end, more than 850 million Chinese are expected to be online — more than the population of any other country except India, according to the Ministry of Industry and Information Technology.
Retail banking revenues will double to 3.5 trillion yuan by 2020, BCG estimates show.
Spokesmen for ICBC and Construction Bank declined to comment on the competition, and Alibaba and Tencent didn’t reply to e-mails.
“The future of finance, including banking, no longer hinges on brick-and-mortar operations, but integration with the web, the mobile and serving customers anywhere 24/7,” said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. “Chinese banks seemed to already have a leg up in finance 2.0 over many global rivals.”
Questions & Answers
Q.What is the primary motivation for Chinese banks to enter the e-commerce sector?
What is the primary motivation for Chinese banks to enter the e-commerce sector?
Banks are entering e-commerce as a defensive strategy and a counterattack against Alibaba's move into banking. It allows them to extend product lines, increase customer loyalty, gather more data, and adapt to the digital age, supporting their core business.
Q.How do MYbank and WeBank differ from traditional banks in their operations?
How do MYbank and WeBank differ from traditional banks in their operations?
Both MYbank and WeBank operate entirely online and do not plan to have any physical branches. They are part of a wave of new private banks licensed by the government, targeting small loans and using technology like facial recognition.
Q.What sales figures have the banks' e-commerce platforms achieved compared to Alibaba's?
What sales figures have the banks' e-commerce platforms achieved compared to Alibaba's?
ICBC's Easy to Buy platform recorded 130 billion yuan in sales since January, forecasting 300 billion yuan for the year. This compares to Alibaba's Tmall which logged 763 billion yuan in sales last year.
Q.What unique products or services are banks offering on their e-commerce sites?
What unique products or services are banks offering on their e-commerce sites?
ICBC's mall offers wealth-management products, gold bars, luxury cars, and even apartments, with developers selling properties directly. China Merchants Bank offers discounts on luxury goods and zero-interest instalment plans for customers.
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