Concerns arise as Chinese e-commerce giants foray into banking

Want China Times, Staff Reporter 2013-09-29

Tencent's stock price on the Hong Kong Hang Seng Index, Sept. 16. (Photo/CNS)

The popularity of Alipay — a leading third-party online payment arm of China's e-commerce giant Alibaba Group — shows that Alibaba is able to attract customers, but Alibaba has yet to profit from the venture. Other e-commerce giants have begun to join Alibaba in offering banking services, but insiders wonder if they can be competitive, the Guangzhou-based 21st Century Business Review reports.

Tencent Holdings — China's largest internet company by revenue — is applying for a private bank licence, boosting its market value above US$100 billion and approaching the market value of Facebook. Meanwhile, the share prices of Suning Commerce, a leading home appliance retailer in China, doubled after the regulator approved its application to set up its private bank, Suning Bank.

An insider said that e-commerce giants' penetrating the banking industry is enriching the financial ecosystem, as most people are unsatisfied with the current banking industry, while Alibaba founder Jack Ma said that "If banks don't change, we'll change banks." E-commerce giants can use their huge information flows to complete the transfers of fund flows, Alipay for example collected 50 billion yuan (US$8.2 billion) in just several days. Such moves have shown the power of e-commerce giants, especially their channel value.

However, being a bank is not that easy, the insider said. The most important function of the banking industry is to solicit depositors and lenders, as well as the risk exposure in the course of the interest rate spread. The challenge for Alibaba and other e-commerce giants in becoming a bank is how to efficiently lend out the money they obtain. Alibaba is likely to lend the money to small clients on its e-commerce platform Taobao, but their lending costs will be higher than the average standard of banks.

So far there is also no evidence to prove that e-commerce giants such as Alibaba can obtain funds with very low costs. If Alibaba really establishes its network bank, one of the first questions will be how it will establish its own risk capability.

The four major banks are guaranteed by Beijing. Although the government has yet to implement the "deposit insurance system," the general public can be reassured that the banks will not go bankrupt, but the same cannot be said for e-commerce banks, the paper said.