FINANCE: Alibaba Finance Advances At Private Bank, Stumbles At Alipay
Bottom line: Alibaba’s technical glitch at Alipay, the launch of its new bank and use of its Taobao platform to auction of bad loans reflect its growing clout in financial services, as it attempts to build up its Ant Financial unit for a future IPO.
E-commerce leader Alibaba (NYSE: BABA) is in a trio of finance-related headlines, spotlighting its growing bet on financial services that could be a huge growth area as Beijing opens the sector to private investment. One headline has seen Alibaba get official permission from its home province to open a bank, after it became one of the first 3 entities to receive private banking licenses under a pilot program by Beijing.
The second headline has seen the company’s popular Alipay electronic payments service experience technical problems that cut off access for 2 hours earlier this week, prompting it to quickly say that no accounts were compromised. The final news bit comes in a larger story about China’s growing bad asset crisis, which will see the nation’s top bad asset management company use Alibaba’s Taobao marketplace to auction off some of those assets.
From an investor perspective, the first 2 news items will have very little impact on the New York-listed shares of Alibaba, which previously spun off most of its financial services assets into a separate company, Ant Financial. Ant was created due to Chinese restrictions on foreign ownership of financial services assets like Alipay, and is directly owned by Alibaba founder Jack Ma and some of the company’s other top managers and other domestic investors.
One of Ant’s biggest assets is Alipay, which is easily China’s largest private electronic payments service provider and is posing an increasing challenge to UnionPay, the state-owned operator of China’s largest electronic transaction settlement network. Many users of Alipay were surprised to discover they couldn’t access their Alipay accounts for a couple of hours around sundown on Wednesday. (Chinese article)
Chinese media quoted Alibaba saying the problem was technical, blaming the accidental severing of a fiber optic cable in its hometown of Hangzhou. Alipay was quick to add that nobody’s account information was compromised, and nobody lost any money. Such accidents are almost inevitable, especially for a company of that size. But this kind of disruption also reflects Alibaba’s youth and inexperience, since comparable names like Visa (NYSE: V) and MasterCard (NYSE: MA), which operate similar networks and services, would almost certainly have backup plans for this kind of disruption.
Next let’s look at the banking news, which has seen a group led by Alibaba given official permission by the government in its hometown Zhejiang province to open their private bank, officially called Zhejiang Internet Commerce Bank but also being referred to as MYBank. (English article) Alibaba said it plans a June launch for the bank, which is also partly owned by private equity giant Fosun and leading auto parts maker Wanxiang.
This particular banking initiative will be similar to WeBank, which was launched by another group led by Alibaba’s Internet rival Tencent (HKEx: 700) in January. (previous post) Both private banks have said they will do all their business online, and rely partly on their large caches of big data to determine customers’ creditworthiness. Both banks are also saying they will target mostly private smaller companies, reflecting Beijing’s concern that these aggressive companies could challenge slower-moving, state-run lenders that traditionally monopolized China’s banking sector.
Finally there’s the bad asset news, which will see Cinda Asset Management (HKEx: 1359) sell some of the booming volume of bad assets it’s likely to handle over the next few years over Alibaba’s Taobao marketplace. (English article) The news is actually part of a larger move that is seeing Cinda take initial steps in its plan to auction off $7 billion in bad assets, mostly based in Alibaba’s home province of Zhejiang.
China is likely to see a flood of such bad debt get auctioned off in the next few years as the economy slows, and many of the biggest bad assets will get sold directly to big investors like Goldman Sachs via major tenders and auctions. But the thousands of smaller bad loans and other assets are more suitable for auction on online marketplaces, which could provide a mini bonanza for third-party online platform operators like Taobao.
Related posts:
