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Internet Services to Reshape Banking in China

10-23 15:24 Caijing
The key to bank restructuring lies in the future integration of the Internet and banking.

By staff reporters You Xi, Song Wei, Liu Qilin, and Yuan Man

After more than a decade of integration of the Internet and banking, China is on the cusp of a revolution in web-based financing. E-commerce and bank informatization - two industries which once developed in parallel - have recently collided and intersected with each other.

On Sept. 18, Chinese Internet service giant Tencent announced the opening of application channels for its online payment platform TenPay and mobile chat application WeChat. The move will allow WeChat's more than 200 million users to generate a QR code for mobile payments that can be scanned with the QR code reader inside the multi-platform messaging app. In the future, users will be also able to complete transfer payments with other WeChat users.

Two months prior, Chinese B2B online platform Alibaba announced it would open its credit loan business to ordinary B2B members in the Zhejiang, Jiangsu and Shanghai regions, with the exception of the city of Wenzhou.

Internet companies, with their data and e-commerce advantages, are making strong inroads into the payment settlement and credit markets, two core businesses of banks. Commercial banks, meanwhile, with their huge amounts of capital and credibility, are unwilling to be relegated to the back-end. Banks are currently making a high-profile move into non-traditional banking areas of e-commerce and mobile payment in order to obtain first-hand information of customers, increase customer bonding and retention, and consolidate and expand the business relationship between banks and customers in deposits, loans, and exchanges.

Commercial banks were prompted to make the move as a result of direct pressure from the financial disintermediation wave set off by institutions such as third-party payment organizations, telecom operators, Internet companies, e-commerce enterprises and bank card organizations.

The same day Tencent announced its new mobile payment services for TenPay, China Merchants Bank and HTC (China) jointly released the China Merchants Bank "mobile wallet," the first mobile payment service to be unveiled since China's mobile payment standards were determined.

Meanwhile, China Construction Bank (CCB) has set its sights on the main business of Internet companies - e-commerce. On July 10, CCB's "e.ccb.com" service went online; as of mid-August, over 1,000 merchants had signed up for the service and total membership reached nearly 100,000.

The Internet greatly reduces information costs and transaction costs of the financial industry. As a result, some industry insiders think that since banks work with asymmetric information, as information becomes more symmetrical, banks' value will gradually decrease.

This new wave, which may bring about a new format in web-based financing as well as a vast market, has not only attracted widespread attention, but also sparked controversy and worries. Jiang Jiping, Secretary-General of the Chinese Academy of Social Sciences Informatization Research Center, said that the future integration of the Internet and banking will prompt the banking industry to change its traditional mode of operation, shifting from relying heavily on specific capital to learning to utilize networked social capital. This is the key to future bank restructuring.

However, continuous innovation in web-based financing has raised challenges for effective supervision.

Wang Lianzhou, deputy director of the National People's Congress Financial and Economic Committee Office, told Caijing that web-based financing is a gray area that cannot be fully covered by the current regulatory system. Moderate mixed supervision is an option, but changes in the relevant legislative and regulatory system will require considerable time and involve a number of procedural issues.

Full article in Chinese: http://magazine.caijing.com.cn/2012-10-21/112212155.html

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