MAKING BANK

Alibaba’s customers can now get a loan based on their online shopping history

Obsession
China's Transition
Obsession
China's Transition

Alibaba spinoff Ant Financial became the latest private company to enter the Chinese banking business with today’s launch of Mybank, an internet-only bank for customers and small businesses.

Mybank will function much like a traditional bank, taking deposits and making loans up to 5 million yuan (about $805,000). But its services are tied to customers’ Alibaba transactions, and it will reach them through an app.

Mybank takes no collateral from debtors. Instead, it looks at the financial data that customers and small businesses have accumulated on Alipay, Ant’s third-party payment service used by vendors and buyers on Taobao and Tmall to purchase items.

Loans are the only service MyBank is providing initially, but the online bank aims to offer deposit services and credit lines to consumers. Individuals and small-to-medium sized businesses are MyBank’s target customers, particularly in rural China, the company said.

“In a lot of the rural areas, the users have less accessibility to banking services,” says an Ant spokeswoman. Because Mybank doesn’t have branches and is operating online, “we can reach out to rural areas as long as you have a phone,” she said. The threshold for applying for a loan will be much lower than a traditional bank, she said.

Ant Financial will hold a 30 percent stake in MyBank. Other main shareholders include Fosun Industrial, Wanxiang Sannong, and Ningbo Jinrun—three Chinese conglomerates with investments in agriculture, insurance, machinery, and other industries. The founders’ initial investment is a 4 billion yuan (about $644 million).

But the most important force behind MyBank is Alibaba. While Ant Financial in theory remains independent from the e-commerce giant, Alibaba founder Jack Ma holds a seat on Ant’s board, and the two companies’ products and services are deeply intertwined.

Mybank will target Alibaba’s network of small-and-medium sized e-commerce vendors for its initial customer base. The company has over 5 million merchants on Taobao, its flagship e-commerce site.

Chinese internet companies have moved full-force into consumer banking. Social giant Tencent received approval from the China Banking Regulatory Commission (CBRC) in July 2014, and launched its own online bank in early January.

China’s central government, surprisingly, has generally supported the entry of private internet firms into the consumer banking sector to compete with state-owned enterprises. China’s premier Li Keqiang personally attended Tencent’s launch party for its bank, snapping photos with company executives and first-time debtors. The CBRC, meanwhile, continues to urge the state banks to loan out to small businesses.

Bank loans to small busineses increased 17% in the first quarter of this year to 21.41 trillion yuan ($3.45 trillion), but the CBRC doesn’t think that’s high enough. Alibaba and Tencent are in a fortunate position—they’re ready to cash in on what the state banks won’t do.

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