/ 25 June 2015

China blurs lines between banking and e-commerce

Rags to riches: Jack Ma is lauded in China.
Rags to riches: Jack Ma is lauded in China.

China is the scene of a growing rivalry. In one corner is billionaire Jack Ma’s Alibaba Group Holding, 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 cellphones to bank and shop.

“China’s banks have woken up and realised that the challenge from Alibaba’s entry into banking is for real,” said David He, a Hong Kong-based partner and managing director of the Boston Consulting Group (BCG). “For them, doing e-commerce is a defence as well as a counterattack.”

The Industrial & Commercial Bank of China (ICBC), which is the world’s most profitable company and 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. The China Construction Bank, Agricultural Bank of China and others are also getting in on the action.

ICBC’s site, called Easy to Buy, is forecasting sales of 300-billion yuan (R586-billion) this year, after tallying 130-billion yuan so far since January. By comparison, Alibaba’s Tmall logged 763-billion yuan in sales last year. JD.com ranked number two at 260-billion yuan.

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’ online WeBank, which launched in December, plan no physical branches.

“It’s fair game in China, where everyone is trying to improve on the consumer experience,” said Joe Ngai, the Hong Kong-based head of McKinsey & Co banking practice.

Revenue from online retailing is expected to reach four trillion yuan this year, according to the China e-Business Research Centre. By the 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 are expected to double to 3.5-trillion yuan by 2020, BCG estimates show.

As of Wednesday, ICBC had a market value of $302-billion against $210-billion for Alibaba.

“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. – © Bloomberg