China's e-commerce giant Alibaba has launched an Internet bank called MyBank which will offer loans to small and medium-sized enterprises (SMEs). They are targeting the market that is not served by traditional financial institutions. Unlike its conventional competitors, the online bank neither deals with cash nor with big clients but instead focuses on the bottom 80% which is the small, mid and micro-sized businesses. MyBank’s target customers lie in rural China.
Now, let’s analyse why MyBank is different from traditional financial institutions. MyBank will not be taking collateral from debtors. Instead, it will look 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. Data-driven loan provision is the next big thing, and that is exactly what MyBank will be doing.
The company said that it will only be providing a single service, i.e., loans, but it also aims to offer deposit services and credit lines to customers.
Alibaba's affiliate Ant Financial Service—which owns 30% of MyBank—will offer loans of up to five million yuan (USD 800,000). MyBank has four billion yuan (USD 654.15 million) in registered capital, state-run Xinhua news agency reported.
President of Ant Financial Jing Xiandong will be serving as MyBank's chairman. The other shareholders include Fosun Industrial, Wanxiang Sannong, and Ningbo Jinrun—three Chinese conglomerates with investments in agriculture, insurance, machinery and other industries. MyBank is one of the five new private banks approved by the China Banking Regulatory Commission in late 2014.
Tencent, another Chinese Internet conglomerate, launched China’s first private bank called WeBank in January this year.
Tencent and Alibaba both plan to exploit the “big data” advantage using valuable user information to evaluate credit risk of small borrowers.
A significant challenge for Internet lenders will be attracting deposits. It will be more interesting to watch how much success these Internet banks achieve when it comes to attracting deposits.