Alibaba forays into Online Banking Network Transform China financial industry

alibabaBy Chi S Siu  & Yan Ping Chau

“China’s finance industry, especially the banking industry, only serves 20 per cent of clients. I see the 80 per cent of businesses that have not been served,” Mr Ma, Alibaba’s outspoken founder and chairman, wrote in the People’s Daily on Aug 2013. “The financial industry needs disruption. It needs outsiders to come in and transform it.”

140911-alibaba_1502_f5f1f1d9bd6d93f0cce3929fe033ade4Mr Ma’s ecommerce group Alibaba, with its more than 500m registered users, has already reshaped the landscape in China’s retail industry. With its first foray into banking – a micro-loan business – growing quickly. Alibaba has encroached on banks’ deposit franchises with a new fund management service called Yu’e Bao, meaning “extra treasure” in Chinese, which allows Alibaba users to directly invest online cash in money market products. It is an attractive alternative to traditional bank accounts. The annualised interest is about 4.5 per cent, more than 10 times the 0.35 per cent rate on current deposits in banks but just as liquid: funds can be withdrawn at any time. Yu’e Bao notched up 2.5m users with Rmb5.7bn ($931m) of investments by the end of its first month.

On September, 2014, The China Banking Regulatory Commission finally gave approval to start a bank to a financial affiliate of Alibaba Group – Ant Financial that also is the parent company of Alipay, which processes e-commerce payments and is crucial to Alibaba’s operations. Setting up a bank would allow Alibaba’s financial affiliate to collect deposits and give it greater freedom to offer other bank-like services.

ant-financial-services-groupOn the 29th of April, Yuan Leiming, Ant Financial’s finance division’s general manager, said that Ant’s new online bank, called MYbank, is scheduled to launch in June of 2015. The launch follows Alibaba’s rival Tencent Holdings own setting up its own internet bank, WeBank, which began initial operations earlier this year. Ant Financial’s and Tencent’s new online banks are just two of several recently approved private banks, as the Chinese government looks to upgrade and modernize its largely state-owned finance industry.

The launch of MYbank is a major step in the creation of a full-fledged internet finance platform for etailer Alibaba. Moreover, this new financial platform is expected to open up services such as banking, loans and credit, insurance, payment systems and investment to hundreds of millions of Chinese who previously had limited access to financial services.

What is Alibaba? 

Alibaba is China’s — and by some measures, the world’s — biggest online commerce company. Its three main sites — Taobao, Tmall and Alibaba.com — have hundreds of millions of users, and host millions of merchants and businesses. Alibaba handles more business than any other e-commerce company.

MARKET CAPITALIZATION

Screen Shot 2015-05-17 at 7.22.53 amAlibaba became one of the most valuable tech companies in the world after raising $25 billion from its U.S. IPO. It is also one of the most valuable Chinese public companies, ranking among some of the country’s state-owned enterprises.

E-COMMERCE

Alibaba is the most popular destination for online shopping, in the world’s fastest growing e-commerce market. Transactions on its online sites totaled $248 billion last year, more than those of eBay and Amazon.com combined.Screen Shot 2015-05-18 at 8.52.53 pmScreen Shot 2015-05-18 at 8.53.58 pm

Alibaba’s IPO is the largest in the world
Screen Shot 2015-05-18 at 8.59.35 pmScreen Shot 2015-05-18 at 8.59.45 pm

Banking Distribution 2015

As per the McKinsey report – Retail Distribution 2015, it expect the typical retail bank by 2015 to have undergone a radical change in its distribution mix and to have the following key characteristics:

Fewer branches, fully digital with a personal touch: ‘One click’ processes will allow clients to get key information, order key products and pay for them with their smartphone multifunction card and on iPad.

More tailored to individual needs: The banks’s product and service offering will be tailored, providing multiple value-added services to clients with targeted market- ing campaigns based on rich CRM data.

Increasingly complex processes: Growing numbers of channels and different plat- forms for digital delivery (for example, Apple and Android) will create enormous process complexities, especially given the way customers increasingly use mul- tiple channels while expecting the process to be seamless.

Enhanced profitability (for those that get it right): the bank’s financial ratios will be much more attractive than they are today. Based on our assessment, it should be possible to reduce costs structurally by 20-40%, mainly due to lower distribution costs and changes in the distribution mix that drive down opera- tions and indirect costs. Higher investments will be needed in new technology, the costs of which can be offset by savings on legacy systems.

Reference:

Journal, WS 2015, What is Alibaba?, March 15, 2015, http://projects.wsj.com/alibaba/%3E.

 RUWITCH, PCAJ 2015, Alibaba steps up China online finance network push with new index, bank, Reuters, retrieved March 14 2015, http://www.reuters.com/article/2015/04/09/us-china-alibaba-mybank-idUSKBN0N005N20150409%3E.

 Victor Matarranz, ES, and Radboud Vlaar 2012, Retail bank distribution 2015—Full digitalisation with a human touch, McKinsey & Co, retrieved May 15 2015, http://www.mckinseyonmarketingandsales.com/retail-bank-distribution-2015-full-digitalisation-with-a-human-touch%3E.

Zhu, G 2014, Alibaba Affiliate Wins Approval to Start Private Bank 

Alipay Parent Company Wins China Regulatory Approval, The Wall Street Journal, retrieved March 13 2015 http://www.wsj.com/articles/alibaba-affiliate-wins-approval-to-start-private-bank-1411970203%3E.

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35 thoughts on “Alibaba forays into Online Banking Network Transform China financial industry

  1. Great topic! I didn’t know too much about the background to Alibaba although was aware of the IPO as it was such big news – and a massive raising! The scale of the Chinese market is just phenomenal and Alibaba’s expansion into financial services is no surprise, however it also shows how technology can enable a range of socio-economic groups to participate in the benefits of these platform businesses, effectively providing a channel through which they can crowdsource / invest and achieve greater returns than through traditional retail banking options.

    Liked by 2 people

  2. Thanks for the blog. Like many businesses the world over, investment in China has gone mobile. It doesn’t surprise me that people choose Yu’E Bao, if the interest rates from Yu’E Bao are much higher than bank interest rates. Also these online services are so easy to use and access, and most users are able to manage their funds through their smartphones. The most important thing is the funds can be withdrawn or transferred like straight away, no need to wait any business days to get the funds through, no need to line up at the back of a big queue.

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  3. Alibaba’s step into banking seems to be a natural one for me. In banking and financial services industry in general so-called “leads” are very valuable. “Leads” are contact details of prospective customers. Companies in general pay to receive such leads because they expect them to turn them into actual customers. Alibaba’s current business model as online retailers produces a very valuable list of leads just as a by-product of their normal business activity. Customers who buy online apparently have internet access and might be interested in doing online banking. Therefore, Alibaba is indeed entering a new market with its step into banking but it can rely on its existing customer base to purchase banking services. This is a very good example of a company doing cross-selling.

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  4. Alibaba expansion is tremendous and even it has good competition among the market globally. I feel that their position and accessibility makes them to grow further into market. Even in India lots Small Scale Industries are accessing Alibaba’s E-commerce chain to import or export the products. Mobile shopping makes people more easier and transaction through mobile is effective and efficient. your blog creates a good clarity on Alibaba growth links and expansion.

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  5. I am very interested in Alibaba~ This is a online trading market platform, which is the world’s leading B2B e-commerce services company, China’s largest Internet companies and the world’s second largest Internet companies.

    Alibaba integration of B2B, B2C, C2C market, with its unique business model, in e-commerce road step to win. In my opinion, Alibaba’s success is closely related to 4P marketing strategies, is: Product, Price, Promotion, Place.

    Now we force on channel strategy: Alibaba was born in Hangzhou, Zhejiang development, growth in the Yangtze River Delta, the success in the world. The reason is, Zhejiang highly market-oriented economy, a high proportion of small and medium private enterprises as well as intensive, export-oriented industries Alibaba strengthen the development environment provides a good ecological environment, along with the booming economy of Zhejiang Province, it was developing in China, while Alibaba positioning in the global market, they face to different languages, cultures and traditional market launch of the different sites; Alibaba also for non-English-speaking countries, the establishment of non-English version of Ali Baba, such as Korean, Japanese and Spanish versions and so on.

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  6. Alibaba Group Holding Limited (NYSE: BABA) is a Chinese e-commerce company that provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals. It also provides electronic payment services, a shopping search engine and data-centric cloud computing services. Alibaba provide a platform that people can sit at home and buy product online, It doesn’t surprise me that customers choose Yu’E Bao since the interest rate of Yu’E Bao is much higher than bank interest rates. Moreover, people can use their smart mobile to access their account anytime and anywhere.

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  7. Alibaba’s expansion is legendary and special. Alibaba has their unique market share and sale model. i feel their want to use their own advantage to build their own industry chain and they do it well.
    it is very interesting which a enterprise could integration of B2B,B2C,C2C market , mostly , the enterprise just do one area. Alibaba thought the marketing strategies which is the product , price, promotion, place well.
    and Alibaba’s success also depends on their market research, they always have a clearly business plane. Alibaba always go in to the market in a good time and right direction. Also, Alibaba’s success is similar like Apple, they have a good team-leader Ma Yun who just like Jobs
    So, Alibaba’s success is not just a accident . i think one day they would become more and more competitive because online business is now becoming a trend. as the one of most success online business , Alibaba would be a strong power in the global market.

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  8. Interesting article, Alibaba’s move to enter the financial sector shouldn’t be a surprise as it is obvious that they have got a good market reach and access to customers who are already participating in billions of online transactions and Alibaba has a very good collection of customer behavioural / lifestyle / spending patterns, which gives them an edge in terms of customizing their financial product offerings.

    Choosing online & mobile platforms to deliver those financial products is a clear indication that they have done their home work with the data they already have an they could clearly see the potential of the existing customers as well as the future.

    “China has never been lacking banks; it has 200 of them,” said Ant Financial Chief Executive Lucy Peng. “But we have an opportunity to use Internet methods, Internet technology, Internet thinking to disrupt traditional finance.”
    Read more: http://www.businessinsider.com/r-chinas-alibaba-renames-alipay-unit-in-financial-services-push-2014-10#ixzz3aegSzj89

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  9. Alibaba steps into the banking industry seems to be a natural to me. In the banking and financial services industry is very helpful and useful. “Information” is a potential customer contact information. Wages for enterprises, because they hope they put them into actual customers receive such clues. A byproduct of Alibaba’s current business model for online retailers have lead a very valuable list like their normal business activities. Who buy online customers apparently have access to the Internet, may be interested in doing Internet banking.And also Choose online and mobile platforms to provide these financial products is a clear indication that, they had finished the their work, home and their data has been a place where they can clearly see the potential of existing customers and future.

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  10. Thanks for the post. I hadn’t thought about it before but the progression from ecommerce to banking seems logical and almost inevitable. How much Alibaba’s approach is unique to China I am not sure but it is interesting how is shows what the future of banking may look like – especially B2B. From what I can see in Australia the Banks use the internet as another way (channel) to provide the service (and reduce costs) but not so much as another way to generate income. After reading your post I hope the Big 4 banks in Australia are clear what business their in.

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  11. I very appreciate Alibaba. Because Alibaba is different than other B2B western countries’ companies. Western countries’ companies focus on the saving money and time for large enterprises, but Alibaba pays more attention on serving for small and medium sized enterprises. Ants financial is the important part for Mr Ma’s “platform + financial + data” planning. Ants financial is ma “platform + + financial data” priority of architecture and planning. If Ants financial can be operated well, Alibaba can serve the small and medium sized enterprises much well on the Chinese biggest online shopping website “Tao Bao”.

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  12. Alibaba clearly had good business reasons for entering the online banking market, presumably well researched ones. It is an interesting move and will be interesting if any of their competition follow suit. Having the fastest growing e-commerce market, online banking does seem a logical step and may provide an avenue through which they can keep their customers as it may become more cost effective to purchase goods online if their purchases are linked to an Alibaba banking account?

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  13. to be a Chinese i am appreciate Mr Ma created the Alibaba, which is a creative change for china and brought the advanced development for economy. the online shopping is not only saving the time for people but also increase the improvement of economy. Mr Ma to be the leader of Alibaba, it is not surprised me that he foray the online bank.

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  14. This is a legendary Article. I had absolutely no idea that Alibaba.com is a chineese venture and how they have conquered the E-commerce market. Look at the stats they have had transactions more than Amazon and Ebay. Talking about the situation of online shopping in India there is way too much of competition, every other shopping or fashion freak is coming up with his/her online shopping sites. But, here the story is different the whole of China’s online shopping market is dominated by Alibaba. Well thats we call a Successful ecommerce business. Thanks for sharing this Article. Good job!! 🙂

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  15. Like most businesses, Alibaba have tapped into the e-platform which allows instant, convenient and cheap customer access.
    With Alibaba’s large customer base, they can benefit from large scale operations, cross advertising for the new sector of banking services. Distribution-Place is an element of the 4P’s and determinant of a product/service’s success. For mass-market products, businesses aim for high traffic, easily accessible locations/touch points, which is what the e-platform can offer. Although some cultural aspect may need to be considered such as some Asians’ view of holding cash or gold as opposed to keeping it in a bank, some traditions are hard to break from. In my experience, the older generation of people in Vietnam (with a similar culture to Chinese, due to 1000 year influence), do no believe in the banking system and find challenges in using a computer and the older generation tend to be those that have more money. Eitherway, with good segmenting/targeting (perhaps the younger age brackets), there is bound to be a huge piece of pie for the new venture. Afterall, 4.5% interest is quite attractive compared to the minimal amounts offered elsewhere.

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  16. Very interesting blog! Alibaba’s business model of utilising ecommerce as their sole means of distribution of services has to be admired. Particularly their move into finance via online mediums. As a consumer I envisage online banking to completely overhaul the current distribution channels, it’s much more convenient and with the increase in online security, consumers are beginning to feel more at home online than in branches. However, branches themselves will never become redundant as long as cash exists and the need for major purchasing transaction are still around. Alibaba is definitely onto something with their fully fledged online banking system and I’ll be watching closely to see how the “Western” financial institutes react.

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  17. Very interesting topic!
    As a Chinese, I witnessed Alibaba’s success and I am also one of their customers. Alibaba has definitely become a vital retail engine for China, and it sells to individuals across the country, from villagers in places without supermarkets and malls to sophisticated consumers in Beijing and Shanghai.
    Mr. Ma understands he can’t keep growing without adequate distribution of the goods sold on his sites. I have read an article saying that he’s taking a big initiative, to create of a delivery network that can reach virtually anyplace in China within 24 hours. To make that happen, Alibaba joined with five delivery companies and other partners to found Cainiao Internet Technology Ltd in order to develop and manage a logistics network. Cainiao will help distribution companies optimize storage and delivery schedules and ensure their trucks take the cheapest and fastest routes.

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  18. Great Blog! Its a massive news that Alibaba have attacked the online banking so much that it has tranformed China’s Financial Industry. Honestly, I didn’t knew Alibaba has become such a giant company. I had heard earlier about it that its growing at a huge pace but still I never expected that it will reach to such heights. Especially when it has reached such a position where it can be compared to Apple, Google, Mircosoft , Facebook and IBM. I am really suprised to see that it has more market capital then Facebook, IBM, Samsung and Intel. It is a massive success for this giant to have Largest IPO in the world. It will be pleasure to watch how its other competitors in the world responds to this!

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  19. Great blogging. Internet grows rapidly in the recent years and internet banking becomes a new banks’ distribution channel. The high development of e-commerce and competitive pressure requires internet banking. In China, for a long time the commercial banks experienced difficult developing due to internet security issues. In 2004, Alibaba can’t wait and built up their own online payment platform Alipay which is the method to get this problem gone at that time. The functions of Alipay is just similar as paypal we used in Australia today. China has large population and the internet banking segment goes to grow up quickly, the banking structure is changing. In order to take more advantages of online retailing, whatever Yu’e bao or MY bank have become the new channels of distribution for financial service.

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  20. How ingenious of Mr Ma to come up with an e-commerce concept which incorporates a marketplace, a search engine and a bank all in one! Alibaba is obviously a very successful B2B e-commerce company. Their strategy to make it simple for everyone to buy or sell anything anywhere in the world and provide a better shopping experience – and now also expanding its portfolio to banking – enables them to put forward a superior customer value proposition and is a huge point of differentiation within the e-commerce space. Their marketing strategy for product, price, location and promotion have meant that they have been able to provide a marketing mix which is attractive to millions of consumers. It is a great way for small and medium enterprises to gain global exposure and the e-commerce platform allows them to do this more efficiently with far greater reach by using Alibaba as their channel of distribution.

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  21. Thank you for the enlightening blog. I hadn’t even heard of Alibaba but will defiantly give it a go from the details given in your blog. just another example of how word of mouth can travel, via blog recommendations!

    Like

  22. I’ve been uing Alibaba for years and never realised how big it was. It definitely does the B2C very well. I guess what I like about it was the fact that it never seemed like a big company like ebay or facebook, now if ind out its bigger then facebook. Kind of killed my illusions of the company. Thanks for the article.

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  23. Chinese market is a large market with a high demand for technology products. therefore the development of online shopping with their utility will become more successful if the company meets the needs of customers. I’ve known as a site Alibaba biggest shopping website in China, however recent information about the possibility of providing banking services Alibaba surprised me. In fact, shopping sites seem Alibaba which serves local customer better than international customers. The vendor’s reputation and long transit times are factors impact on purchasing decision of international customers.

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  24. Thanks for blogging. Like many other Chinese person, I have used Yu’e Bao for a time. It is easy to control and put your money into it. And it also give you more interest than the bank do. The increase number of the person using this kind of internet fund shows the success of the Mr. Ma. He let the Alibaba not a simply B2B and B2C business company, but also a new star in Chinese Financial sector. The blogger can put more details of the Alibaba and let more other person know this amazing company.

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  25. Thank you very this great blog. Alibaba broke the traditional rule of shopping in China, and let more people know and accept shopping online. Alibaba provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals, I have used Alibaba for online shopping. It is really convenient and easy to use. Alibaba’s marketing strategy and promotion method is very efficiency. There is no problem that it is a successful company in e-commerce.

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  26. Great and informative blog.Kudos to the blogger on the efforts. It is so suprising sometimes to see some companies like Alibaba are at such a place where we never couldnt imagine for. Alibaba has surely created a great imapct in the Ecommerce industry. Like its competitors, namely, Amazon and ebay, it has gone mobile, and due to its varied marketing and promotion tactics, it is proving to becoming a world leader in the industry.

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  27. Thanks for your interesting post, you know, as a Chinese, I am so proud of the enterprise of Alibaba . Generally speaking, Alibaba is the most popular destination for online shopping cover the China. To be more exact, I thought there may exist some similarities between Alibaba and Synnex, and maybe they can learned success by each other’s.

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  28. Thank you for your post, very interesting topic.
    According to Chinese development, the timing of Alibaba’s founding has determined its rise and success today. As it enters the market when Ma explores the potential of eBusiness growth in China, more importantly, it enters the market before its potential competitors recognised such great market opportunity.
    Moreover, Alibaba is contemplated as a learning organisation due to its organisational culture encourages its members to constant learning and training in order to adapt into various external business environment. In addition, this circumstance benefits Alibaba gain further and greater advantages than its other competitors, which sustains its leading position in the marketing.
    Throughout overall Chinese economic growth, it enables Alibaba and other domestic firms to enter into the global market, where such extraordinary economic performance enhances Alibaba’s global performance. Overall, Alibaba has made consistent strategies that benefits its growth and leading position.

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  29. Great blog and an interesting case study. Alibaba’s rise has many similarities to that of Synnex.
    Until I read the figures (e.g. Transactions on its online sites totalled $248 billion last year), I had no idea of the market size for online sales. This is another perfect example of an organisation embracing advancements in technology.

    Like

  30. For my own preference, I do prefer Alibaba when I was in China. Besides, there are many Chinese people overseas still using Alibaba. Many users using Alibaba to do online shopping.Therefore, it does obviously to see that what Jack Ma said is correct. What’s more, in my own opinion, the financial industry in China is still traditional, in some extent this has been out out of date. Therefore, the industry “needs outsiders to come in and transform it.”

    Like

  31. Thank you for this interesting discussion. One of the trending topics right now for , it made life so easy with just a click away. Who would have thought years ago, everything ranging from groceries to electronics would just be a click away ? It came as no surprise with this development in China . For all the right reasons, the range of services it provides, it has quickly become one of the 20 most visited e commerce websites globally . In the fastest growing e commerce market, reaching to the heights of being compared with the biggest giants Walmart or eBay , only justifies its appearance in the Brandz rankings recently released . Putting it above Amazon, the next most valuable retail brand and Walmart speaks volumes of its incredible achievements since its foray into the Online Banking network.

    Thank you once again for sharing this inspiring success story.

    Like

  32. Thanks for the blog.I understand that YuE Bao is a good balance of financial products. It is higher than bank interest rates and formalities are very convenient. But there are some problems of Yu E BAO still not satisfactorily resolved, such as the network Trojan horses, identity theft. The banking system is unlikely to occur. If the Yu E Bao can solve these problems, I believe that in the future Yu E bao will slowly replace the bank’s position.

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  33. Alibaba has always been a very intriguing topic. Alibaba is examined as a learning association because of its hierarchical society urges its individuals to consistent learning and preparing with a specific end goal to adjust into different outer business environment. Likewise, this condition advantages Alibaba increase further and more prominent focal points than its different rivals, which supports its driving position in the advertising. Their advertising method for item, value, area and advancement have implied that they have possessed the capacity to give a promoting blend which is appealing to a great many shoppers.
    Thanks for the blog !!

    Like

  34. Pingback: 蚂蚁金服高管访问硅谷,重磅 IPO 再传新进展-天麻八部

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