When Jack Ma, founder and chairman of e-commerce giant Alibaba Group, vowed in 2008 to change the banking industry, the public was just beginning to understand his idea of a Net-based financial ecosystem.
Now the firm is offering small loans, securities investments and payment services. It has also ventured into insurance by co-founding a company to sell policies and settle claims online.
Few would argue that even the large banks have felt pressure to broaden and improve their services. Privately, many bankers and analysts say that the only barrier to Alibaba becoming a real bank is a license.
The alternative that Alibaba is developing allows customers to prepay sellers for their purchases at a discount, sparing the latter the need to borrow from banks and hold inventories for a long time, the executive said. The customer-to-business (C2B) mechanism has gained ground on Alibaba's popular e-commerce websites Taobao.com and Tmall.com.
As in other services available on Alibaba's platform, data mining is all that matters in terms of discovering business opportunities and controlling risks, the executive said.
The emphasis on data has also played an important role in Alibaba's recently announced cooperation with China Minsheng Bank. The two signed a cooperation agreement in September, saying that they will jointly explore areas including wealth management, direct banking and credit card services.
A report by Haitong Securities says Alibaba is easing into the banking sector through such cooperative deals in which it provides the partner financial institution customers and distribution channels in return for financing and risk management expertise.
Some bankers argue that the threat from Alibaba to the banking industry has been overplayed. Their confidence stems partly from the belief that cooperation alone does not teach banking. More importantly, many doubt that what made Alibaba's financial services successful online work equally effectively in the real world.
"Both of the company's strength and weakness lies in its platform," an investment analyst familiar with Alibaba said. However extensive the company's financial services can be, they are limited to the e-commerce platform because outside the system it has gathered little data to help evaluate borrowers' creditworthiness and make lending decisions.
Minsheng's Lin said he is not worried about Alibaba getting a banking license either because with the license it will have to comply with tougher requirements on capital and liquidity that will make expansion in the real world much harder than online. Cooperating with Minsheng, on the other hand, will benefit both sides because they can jointly provide better services to more people, he said.
Some critics have wondered whether Alibaba is strong enough to compete against banks even online. Its investment service, Yu E Bao, may have rapidly soared to fame thanks to Alibaba's huge client base – in less than two months after it was launched in June, users have put more than 20 billion yuan in their accounts – but there are reasons to doubt the success will last.
One of them is Alibaba's inability as a non-financial institution to borrow funds from the central bank and the interbank market to smooth out liquidity fluctuations in Yu E Bao investments.
The ease with which people can transfer money between their Yu E Bao and bank accounts has also been criticized. Some say it misleads investors by not warning them enough about investment risk.
Some have suggested that Alibaba's success in financial business owes in part to regulatory gaps. For example, unlike financial institutions including banks, the securities regulator does not send inspectors to Alibaba for on-site assessment regarding its operations related to securities investment.
But this is about to change. Alibaba's domestically incorporated subsidiary, Zhejiang Alibaba E-commerce Co., has proposed spending 1.18 billion yuan acquiring 51 percent of Yu E Bao's manager Tianhong Asset Management. If the deal succeeds, as the majority shareholder of a fund company, Alibaba will face the same requirements as applied to financial institutions.
The China Securities Regulatory Commission (CSRC) has never allowed a non-financial institution to hold the majority stake in a fund management company. But the new Securities Investment Funds Law, effective June 1, says a controlling shareholder can be any company with good financial operations record.
Source: Caijing
