The Strategist

Why Does Alibaba Need a Bank?


06/25/2015 - 16:45



China's largest online retailer Alibaba became interested in internet banking. Today it was announced that MYbank launches in China, the lion's share capital is owned by Alibaba. It seems that the Chinese want to lend to businesses, which subsequently place the products in the store.



leighklotz via flickr
leighklotz via flickr
MYbank’s 30% is owned by Ant Financial Services Group, controlled by Alibaba Group. It has available 4 billion yuan ($ 644 million). This organization will be engaged in lending to small and medium-sized enterprises. The volume of the loan must not exceed 5 billion yuan ($ 805.5 th.).

Thus, MYbank occupies a niche in the market, in which large financial institutions will not be able to make a direct competitor. Ant Financial Services Group’s officials argue that those players who got denied by the larger lending institutions will be able to get a loan at the bank.

Later MYbank can turn into a more powerful structure that is able to compete with the heavyweights of the Chinese market, but first it needs to get approval from regulators. The fact is that the Chinese companies do not have the right to take deposits without a special permission, and therefore, MYbank will be deprived of a strong inflow of liquidity that comes with the growth of deposits.

At the same time, it is clear that the purpose of Alibaba is not to create a traditional bank, but encourage the development of small and medium-sized enterprises. It is possible that they could place their products on Alibaba sites, contributing to the expansion of the retailer.

- MYbank exists to ensure the availability of credit to small and very small businesses, and we will provide banking services not to rich, but small players, - said Eric Jing, chairman and CEO of the Internet bank. Note that the size of the loan, up to $ 800 thousand, suggests that clients may become representatives of medium-sized businesses.

Before, the main competitor, Tencent Holdings, took up online banking too, having launched the first online bank under the name of China WeBank. This structure works in test mode, and the news was announced in January.

Jack Ma, head of Alibaba Group, made it clear that the competition with Tencent made him interested more than the war with the big banks. Those already affected by the expansion of the monetary fund Yu'e Bao affiliated with Alibaba, what deprived the traditional credit institutions of a significant volume of deposits, and now may be hostile to Ma business.  

It is possible that on this background MYbank generally will not develop the depository wing. But the credit unit can hurt business of larger financial institutions. Reducing costs by moving all functions to the Internet will provide lower rates on loans. At the same time, the size of these loans is limited, at least for now.

MYbank activities involve serious risks. The Company cannot attract deposits, and therefore not able to protect themselves against unexpected losses on loans. At the same time, they are going to lend to companies that large banks refused to serve. China has a lot of companies with opaque credit history. There are really poor players unable to guarantee the payment of new debts. If a farmer, lost almost all of the growth prospects for its business and turned away in a large bank, load MYbank with bad debts, it can bring substantial losses to Alibaba.

However, Ant Financial claims that the system will analyze the information from the credit department Sesame Credit, which in turn relies on data from Alipay payment system and Alibaba online platform. Apparently, customers, who did not use the service won’t be given a loan.


 




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