China’s biggest e-commerce company has gotten the go-ahead to get into banking.
Alibaba Group Holding Ltd.’s finance affiliate, Zhejiang Ant Small & Micro Financial Services Group, owns 30% of Zhejiang Internet Commerce Bank, which this week won a banking license from the China Banking Regulatory Commission.
“The name of the bank shows we will operate it fully through online,” says Ant Small & Micro Financial vice president Yu Shengfa. “We will emphasize small deposits of less than 200,000 yuan ($32,581) and small loans less than 5 million yuan ($810,000).”
The Chinese government only this year began allowing companies not owned by the state to obtain banking licenses. Previously, such companies could only buy shares in state-run financial institutions. Private banks must have at least three major shareholders, with none owning more than 50% of the shares. That prevents big companies like Alibaba, which raised $25 billion in a record IPO on the New York Stock Exchange last month, from directly owning a bank.
The Chinese banking regulator also recently approved four other licenses for private banks, including one for Shenzhen Qianhai Micro Focus Bank, which is 30% owned by Alibaba rival Tencent Holdings Ltd. That bank plans to provide similar services to those of Alibaba’s bank.
The China Banking Regulatory Commission says these new private banks can only provide small loans small business and consumers, and accept limited deposits.
Alibaba’s chairman Jack Ma has said, “I want to challenge the banking system. If banks don’t change by themselves, I will change the banks.”
And Alibaba has made its mark in financial services in the past year, particularly by launching a money market fund called Yuebao that now hold 574.1 billion yuan ($92 billion) in assets, according to Alibaba. Yuebao attracted 100 million depositors in a matter of months by initially offering a 6% annual interest rate, far above the norm in China. That interest rate is now 4.2%.
Alibaba says its transaction-processing capability will allow it to complete credit checks for small loans in seconds at a cost is only about 1 yuan ($16 cents). In contrast, the normal loan approval at a traditional bank costs 200 yuan ($32), Alibaba says.
Alibaba said in its filings with the U.S. Securities and Exchange Commission that its online marketplaces in China handled $248 billion worth of transactions in 2013. That represented about 81% of consumer online purchases of $305.8 billion, according to Beijing-based e-commerce monitor iResearch.
Tencent’s e-commerce site Yixun is No. 5 in the Internet Retailer China 500. Alibaba is not ranked in the China 500 because, like eBay Inc., it is not itself a retailer but rather a platform that merchants use to sell to online consumers.
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