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Internet Banking: A Two-Horse Race

01-07 00:00 《财经》杂志 《财经》杂志

By staff reporters Song Wei, Liu Qilin, and Xie Lirong

Internet banking, which came into being only a decade ago, has shaken up the tightly-regulated financial industry and opened up new possibilities for the booming Internet industry as it thrived in the last year.

Internet banking is likely to "terminate" traditional banking and reduce banks to mere conduits of capital going forward. Internet banking is the future of the financial industry, which will be dominated by Internet companies competing with one another. A race initiated by emerging Internet giants, in particular Alibaba Group (Alibaba) and Tencent, to develop innovative products and grab market share in the e-finance sector, has accelerated as of late.

Starting with the launch of Alipay in Oct. 2003, Aliloan, the financial arm of Alibaba, has established an innovative business model that takes into account the needs of both online and offline users by leveraging on the group's extensive channels and massive data.

Alibaba announced March 7, 2013 that it plans to set up China's first big Internet banking service group - Alibaba Microfinance Service Group (Microfinance Service), which will be completely independent from Alibaba Group.

Microfinance Service, which operates through four business segments: payment, micro-credit, guarantees, and retail financial services (wealth management+insurance), offers products including Alipay, Yu'ebao, Jifenbao, Wangshangdai, and Xinyongdai.

Two closed loops have formed within Aliloan's ecosystem: one at the enterprise market around micro-credit; the other at the consumer market with Alipay at the core. Alipay now has 300 million active users and settled 35.02 billion yuan worth of transactions on Nov. 11, 2013.

Li Yinan, deputy general manager of China Everbright Bank's Corporate Investment Department, says that Aliloan needs to focus on risk control moving forward, which is banks' core competitiveness. In addition to data, banks have relied on their experience in dealing with companies from different industries to help control risks. It requires a highly complex system to allocate loans appropriately among different industries.

Alibaba and Microfinance Service are leaning towards betting on a credit system established based on big data. The problem is Alibaba's data has its limitations. To some extent, both Baidu and Tencent's data cover a larger base than Alibaba's. Baidu possesses business data of various industries and user behavior analysis data based on searches; while Tencent holds data on e-commerce and users' social networks.

An insider at Aliloan says that Alibaba wants to expand beyond transaction data and has launched Laiwang, a cross-platform instant messaging app, and acquired Amap and Sinamap as part of its data strategy.

Owning China's largest and most active mobile Internet user base is considered the biggest advantage of Tencent's financial arm. The company's mobile messaging app WeChat boasts over 270 million active users and about 600 million registered users worldwide. In addition, the number of people that use the mobile version of QQ is approaching 800 million.

Most industry insiders interviewed by Caijing believe that financial products are a combination of data. So the company that gets more data can come up with better financial products. Apparently, Tencent, with its huge user base, has got a first mover advantage in attaining big data.

WeChat's payment service enables enterprises to sell products and services via WeChat public accounts, which instantly brings hope to Tencent's longtime fruitless efforts to win a place in e-commerce. The mobile payment service also poses a threat to Alibaba's dominance in online payment and has caused Alibaba and Tencent to compete head-to-head since the second half of 2013.

Lou Jianxun, head of micro-credit at Microfinance Service, contends that Alibaba and Tencent will play a role similar to that of banks. The two Internet giants started off differently and both companies are still in their infancy; however, they are highly likely to end up at the same destination. Alibaba and Tencent's explorations will determine when China's Internet banking sector will shake off its current chaotic state.

Full article in Chinese: http://magazine.caijing.com.cn/2014-01-06/113777782.html

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