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Alibaba forays into Online Banking Network Transform China financial industry

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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4.5 per cent, more than 10 times the 0.35 per cent rate on current deposits in banks but just as liquid: funds can be withdrawn at any time.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.