Alibaba, Suning In Banking Advances
Banking services have suddenly become the flavor of the day for China’s Internet firms, with e-commerce leader Alibaba forming a new tie-up with a major bank, as Suning (Shenzhen: 002024) moves closer to its aim of getting a formal banking license. This relatively sudden move by Internet firms into financial services comes as a slight surprise, since I haven’t really seen anything similar in the west. But that said, the financial services sector in most western markets is already well served by mature, market-oriented firms — a sharp contrast to China where the sector is dominated by less efficient state-run companies.
On that note, I’ll start by saying I quite like Alibaba’s choice of Minsheng Bank (HKEx: 1988; Shanghai: 600016) as its new banking partner, since Minsheng is one of China’s oldest private lenders and is more market-oriented than traditional state-run behemoths like ICBC (HKEx: 1398; Shanghai: 601398). Alibaba and Minsheng announced the tie-up in a formal Hong Kong stock exchange announcement (company announcement), which provided relatively few concrete details.
The announcement itself simply says the 2 sides have entered into a strategic cooperation framework agreement that could cover a wide range of financial services. Those could include credit card business, capital clearing and settlement, direct banking and letter of credit business. Alibaba’s charismatic founder Jack Ma has previously said that China’s business sector is underserved by the nation’s banks, and that he sees huge opportunity in the sector. I personally agree with that view, as China’s big state-run banks aren’t very good at lending to private companies and have been slow to develop new products and services to meet the needs of China’s fast evolving private sector.
Alibaba has previously entered into agreements with other major Chinese lenders including state-run giants Bank of China (HKEx: 3988; Shanghai: 601988) and China Construction Bank (HKEx: 939; Shanghai: 601939). While it’s not clear how this new tie-up will differ, I suspect Alibaba hopes to use the agreement as foundation for a much deeper push into traditional banking services for both consumers and businesses.
The combination of this pair could be a potent one, as it would combine Minsheng’s skill and experience in services like credit cards and letters of credit with the millions of consumers and private sector businesses that use Alibaba’s popular e-commerce services. The main risk is that traditional state-run banks may become increasingly alarmed by this aggressive expansion into their turf by Alibaba and other Internet firms, and use their government connections to create obstacles and eventually drive these new rivals out of the market.
On that topic, another major e-commerce firm looking to move into financial services is Suning, which began its life as a traditional consumer electronics retailer but has recently expanded into e-commerce and general merchandise. Suning first disclosed last month that it was pursuing a banking license (previous post); now media are reporting the company has just received approval from the powerful Commerce Ministry as it awaits final approval of such a license from the China Banking Regulatory Commission (CBRC), China’s banking regulator. (Chinese article)
The reports say Suning’s name was one of several to appear on a list dated September 12, in which the Commerce Ministry named a first round of private sector applicants to be approved for a new round of banking licenses. I’ll admit that I’m not intimately familiar with these particular licenses, though the media reports say they will be the first such banking licenses for private sector businesses.
Private companies like Alibaba and Tencent (HKEx: 700) already have licenses to operate electronic payments services; but it appears these new licenses may be far more comprehensive, allowing licensees to offer a much wider array of traditional banking services. If Suning really becomes one of the first e-commerce firms to win its own independent banking license, it could get a big advantage over companies like Alibaba that have to operate through partnerships with existing banks like Minsheng. Still, what’s clear in all this is that major changes lie ahead for the financial services sector, and the companies with the most to fear should be traditional state-owned players.
Bottom line: Alibaba’s new tie-up with Minsheng Bank and Suning’s advance towards a banking license mark the latest moves into financial services by e-commerce firms.
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