China: WeiyangX Fintech Review

People’s Bank of China and the State Administration for Market Regulation Jointly Incorporate Fintech Products into the National Certification System

To implement the policy of “pushing for the establishment of a management system based on government supervision and led by standards where corporate responsibilities are fulfilled” raised at the executive meeting of the State Council on August 28th, 2019, the People’s Bank of China (PBC) and the State Administration for Market Regulation (SAMR) jointly released an announcement to incorporate fintech products into the unified national certification system. By doing so, they seek to put standards in place to continuously strengthen the safety and quality management of fintech, guard against the transmission of risks caused by quality deficiencies of fintech products to the financial sector, and better enable fintech to be innovative while promoting good governance and comprehensive management. (Source: PBC)

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China’s Video Portals Start to Offer Online Installment Loans

From this month, Chinese consumers are offered a new channel to borrow money.

Mango TV, a leading Chinese video portal, were reported to provide online installment loans. By clicking on “My Wallet” on the APP, users will be offered the access to an online market called “分期商城” (Fenqi Market) where all products and services could be purchased by installment. The market features products that appear in Mango TV’s variety shows and dramas, like skin card products, furniture or electronics. (Source: Xinliu)

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WeBank and Shenzhen University Jointly Establish China’s First Fintech Institute

On October 31st, WeBank, the internet bank backed by Tencent, and Shenzhen University jointly established the first fintech institute in China. In the future, the joint-institute will offer courses and trainings to explore various fintech technologies, including big data, blockchain, insurtech, regtech, etc. Leveraging on both parties’ advantages, the institute is planning to establish itself as a platform for global fintech communication, industrial innovation and talent cultivation, making contribution to the development of the Guangdong-Hong Kong-Macao Greater Bay Area. (Source: Economic Daily)

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China UMS Invests in BC Card’s Subsidiary Smartro

On October 30th, BC Card from South Korea announced that it had received its first foreign investment. China UMS became the investor in Smartro, a subsidiary of BC Card, by acquiring 20 percent ​​of BC Card’s stake in the company, including old Smarto shares held by BC Card and newly issued shares.

As a subsidiary of China UnionPay, China UMS focused on big data services, marketing and value-added services for payment innovation. BC Card is planning to introduce better payment services (e.g. QR codes) to customers in South Korea through its cooperation with China UMS. (Source: Aju Business Daily)


 

The above is a weekly synopsis of the biggest stories on Fintech in China provided by WeiyangX, part of Tsinghua University, in partnership with Crowdfund Insider.

WeiyangX is the most influential website focusing on Fintech in China. The site covers the latest news, industry data analysis, business practices, and in-depth Fintech cases in Fintech. WeiyangX is incubated by Fintech Lab. Founded by Tsinghua University’s People’s Bank of China (PBC) School of Finance in 2012, the Fintech Lab is the first and leading research entity dedicated to leading best practices, promoting interdisciplinary innovation, and encouraging entrepreneurship in the field of fintech through scientific research and innovative project incubation.

China: WeiyangX Fintech Review

Tencent-backed WeBank Fined ¥2 million for multiple violations

WeBank, China’s first internet bank, was fined for ¥2 million for multiple violations against Law of the People’s Republic of China on Commercial Banks. In an inspection last year, the Shenzhen branch of the China Banking and Insurance Regulatory Commission found that the bank was involved in irregular loan issuance and business undertaking, management noncompliance and employee misconduct (e.g. some WeBank employers used consumer loans from the bank to invest in stock and futures trading). (Source: eeo.com.cn)

Guangzhou Metro Testing Facial Recognition Payments

At the National Metro Transit Conference last year, a third-party company responsible for facilitating research and development of Guangzhou Metro revealed that they were testing a “facial recognition payment solution”.

Last year, Guangzhou Metro has tested “facial recognition security check” in four stations. Passengers need to make real name authentication on Guangzhou Metro App and upload a picture. After the application is approved, the passenger could then be offered this facial recognition fast track.

Two pilot gates with facial recognition facilities have been seen installed in Canto Tower Station. It is guessed that commuters may have to go through an application process similar facial recognition security check for the use of the new payment solution. At present, QR code payment, Yangchengtong Metro Card and Single Journey Coin/Ticket are all accepted in Guangzhou Metro. (Source: ycwb.com)

Fintech Platform 9F Inc. went public in the U.S.

On August 15th, Chinese Fintech platform 9F Inc. went public on Nasdaq Global Market and began trading under the ticker symbol “JFU.” A total of 8.9 million shares of depositary receipts (ADS) were issued for the listing, with an issue price of $9.50. The IPO raised funds amounted to 84.55 million US dollars (about 590 million yuan).

9F Inc. is a leading Fintech platform in China, providing a range of financial products and services across loan, online wealth management products, and payment facilitation, all integrated under a single digital financial account. It leverages technology, deep understanding of its large user base and strategic partner relationships to create a one-stop experience bringing together borrowers, investors, financial institution partners and merchant partners. (Source: cet.com.cn)

Yirendai Plans to Raise Registered Capital to ¥1 billion

On August 14th, Yirendai Wealth posted a statement on its official Weibo account. As stated, Yirendai has managed to reach ¥530 million after a capital-raise in July, and is planning to carry on to raise its registered capital to ¥1 billion with another round of financing.

At present, the platform has already submitted its plan to the regulatory authorities and will publish relevant progress in a timely manner. (Source: WDZJ)


The above is a weekly synopsis of the biggest stories on Fintech in China provided by WeiyangX, part of Tsinghua University, in partnership with Crowdfund Insider.

WeiyangX is the most influential website focusing on Fintech in China. The site covers the latest news, industry data analysis, business practices, and in-depth fintech cases in fintech. WeiyangX is incubated by Fintech Lab. Founded by Tsinghua University’s People’s Bank of China (PBC) School of Finance in 2012, the Fintech Lab is the first and leading research entity dedicated to leading best practices, promoting interdisciplinary innovation, and encouraging entrepreneurship in the field of fintech through scientific research and innovative project incubation.

Alibaba Must Acquire Starbucks, WeWork, Airbnb, Uber, Tesla & PayPal

During July 2016, I was part of a delegation of US Fintech executives visiting our counterparts in Hong Kong, Shenzhen, and Shanghai, China. We toured and visited some of the most exciting Fintech platforms in China such as LuFax, CreditEase, Tencent (the creator of WeChat), and Alibaba. Our tour finished at the beginning of the largest Fintech conferences in the world, the LendIt Conference in Shanghai (or Lang Di Fintech).

China Views the World Differently

Our tour group was well received with enthusiasm and respect from our Chinese friends. A ton of discussion on business strategies, regulatory environment, and government support, dominated our agenda. Personally, it was a surreal and anxious experience. Seeing how the Chinese have developed their financial technologies with little governmental hindrance gave me some profound perspective.

Chinese businesses see the world differently than businesses in the United States. For one, they are building an economy, not businesses.

Jack Ma recently explained his vision as he creates this economy. He wants Alibaba to become more than Amazon. Each one of the Chinese Fintech companies we visited all had one goal in mind; global domination through payment and financial services.

Our day in Shenzhen was hot and humid. This bourgeoning city grew from 1 million people to 10 million in just two decades. Because of it’s proximity to Hong Kong, this city has ballooned into a finance and tech driven metropolis.

 

The tour group took a short bus ride from Hong Kong and our first stop was Tencent’s headquarters. Tencent, perhaps is most known for it’s chat program Weixin, also known as WeChat. To put this platform into perspective, WeChat has nearly one billion active users on it’s platform at any given time, that’s 13% of the entire world population.

We walked through the highly choreographed corporate tour that took us from the founding of the company to a miniature model of Tencent’s new headquarters being built next door. We also made a pit stop at the R&D exhibit where Tencent is working on some of the most advanced mobile and embedded technology. I remember seeing their GPS tracking technology that tracks your children via wearables in real time and cashless dispensers of any type using their WeChat platform.

We finally settled into a conference room where a gentleman with impeccable command of the English language walked us through Tencent’s vision of our future.

The presenter went through a few slides but the slide grabbed my attention was a comparative analysis of Tencent’s business strategy vs. American business strategies. To a larger extent, this strategy reflects how Tencent, Alibaba, Huawei, Lenovo, Baidu and Haier see the world.

The left hand side of the slide has Tencent’s logo watching over 5 swimming lanes: Instant Messaging, Music Distribution, Publications (Film, Books, Video Games), TenPay (payments) and online shopping platforms. The right hand side of the slide also has 5 swimming lanes, but each swim lane is only represented by a single U.S. company: Facebook, Apple, Amazon, PayPal and so forth.

The stark contrast is obvious. Chinese companies such as Tencent and Alibaba Group operate on all verticals, they see the world as one connected organism where a U.S. company too frequently only focuses on a single vertical. Tencent wants to leverage their billion WeChat users to control their media consumption and force them to transact on WeChat’s wallet.

Tencent’s presentation ended with their strategy around a newly acquired banking license from the Chinese government. Two of these banking licensees were issued, one to Alibaba and the other to Tencent.

Tencent aptly called their bank, WeBank. (We will hear more about it in the coming years). They proceeded to demonstrate their mobile banking app where ordinary Chinese with just a few clicks may borrow up to 20,000 RMB, roughly $3,000 USD. They already have hundreds of thousands of users within a year of beta testing their app.

Walking away from that presentation, I must be honest that the Chinese way of conducting business is a little unsettling. Their ambition is seemingly unchecked and as capitalistic as the John D. Rockefeller of the 1870s. These Chinese colossal conglomerates are the way of life and these firms want to dominate every vertical possible. Their insatiable appetite wants to monetize every user, every interaction and transaction on every platform under their control.

[clickToTweet tweet=”Can US companies compete with the same mentality as their Chinese counterparts? #Fintech” quote=”Can US companies compete with the same mentality as their Chinese counterparts? #Fintech”]

Can U.S. companies compete?

Resources aside, can U.S. companies compete with the same mentality as their Chinese counterparts?

This week, we saw a glimpse of hope. Jeff Bezos of Amazon acquired grocery chain Whole Foods. Most of us were stunned and it’s certainly a chin stroker. While Business Insider and Forbes are figuring out the situation, Amazon is continuing it’s domination in physical distribution channels with their brick and mortar bookstores and Amazon Go (their hipster version of a 7-11).

A few months ago, Microsoft acquired LinkedIn. Intel acquired Mobileye (software maker behind autonomous cars). SoftBank acquired Boston Dynamics. SoFi bought Zenbanx.

Not to be outdone… Tencent acquired 5% of Tesla for $1.78 billion and took a 12% stake in Activision Blizzard. Tencent now controls over 13% of the $100 billion gaming industry.

Let’s check Alibaba’s acquisition war chest: $200 million in Snapchat; $250 million in Lyft; $400 million in Riot Games; and $140 million into Jet.com before Walmart acquired Jet for $3.3 billion. Close to the competition loo, Alibaba controls over 30% of Tencent’s rival Sina Weibo.

Perhaps Alibaba’s and Tencent’s style of business just wouldn’t work there in the U.S. Perhaps we need to take a closer look at how the Chinese are rewriting the rules for global domination in today’s economy.

Will Apple pony up $60 billion for Netflix? We can only hope.


Timothy Li is the CEO of Kuber and MaxDecisions. He has over 14 years of Fintech industry experience. He’s passionate about changing the finance and banking landscape. Kuber launched Fluid, a credit building product designed for college students to borrow up to $500 interest free. Kuber’s 2nd product Mobilend is a true debt consolidation product, aiming to lower debt for all Americans. Li also the co-founder and President of P2P Protect, an Insurtech platform that offers P2P insurance products. Li sits on multiple advisory boards including Rocketloans.


China: Weiyangx Fintech Review

Qudian.com announced to exit from campus installment market in which it used to be the leader, and turned their focus on consumer finance.

China Forbidden City Sunset BeijingQudian.com (previously named Qufenqi.com) announced this week that they would exit from the campus installment loan market, and made consumer finance for non-credit card communities as their core business. Qudian.com was once the leader in China’s campus installment loan market, with a total registered user volume up to nearly 20 million. He Hongjia, co-founder of Qudian.com, said the business transformation had started in 2015 and marketing for campus installment loans had come to an end earlier this year. Once the remaining student users graduate, Qudian.com will withdraw entirely from campus market. (Source: Sina Finance

Ant Financial set up the first global consortium of green internet finance with UNEP.

On September 5th, Ant Financial set up the first global consortium of green internet finance with United Nations Environment Program. Globally speaking, the current green finance is mainly about green credit, green bonds and green development funds intended for large corporations and projects. The green market is of great potential, yet lacks in innovation. It is believed that “Internet + Green Finance “would promote the collaboration between individuals and SMEs, and make green finance an essential part of everyday life. (Source: YNET.com)

Former president of WeBank.com Cao Tong and his team launch China’s first ABS cloud platform in Xiamen.

One year after leaving WeBank.com, Cao Tong and his team launched China’s first ABS cloud platform in Xiamen this week. Through this self-service platform, users can input and upload data, form a capital pool, design and issue products based on the data. Cao said that most of China’s internet related innovation targeted individuals. However, he believes that as the industry develops, more opportunities and space shall emerge for institutional B2B opportunities, and ABS would one of them.  (Source: Finance QQ)

Online mutual insurance platform YIQIHUZHU.com announced a Pre-A round fund of ¥30 million.

Online mutual insurance platform YIQIHUZHU.com got a Pre-A round fund of 30 million RMB. The investment was led by Yi Capital. Matrix and Morningside Ventures, which had invested in the angel round, also participated in this round.  It is estimated YIQIHUZHU.com has acquired an angel round of millions in June.

Current registered users of this platform are about 450,000. There are now 21 people on the operating team. Services are provided through the official WeChat account of platform. (Source: 36kr)

The official site of National Internet Finance Association of China launched this week.

On September 8th, the official site of National Internet Finance Association of China launched, along with the association’s official WeChat account.  It was said, in the future, the site would provide services like member queries, membership applications and management.  Current members of this association include Hongling Capital, PPMoney, China Rapid Finance, Jimu.com, and more. The second round of member recruitment is said to begin in early 2017, and may set up a higher access threshold with recommendations from local regulation authorities.  (Source: WDZJ.com)

Internet insurance in China (2011-2015): market penetration rate rose from 1.6% to 48%, total user volume added up to 330 million.

From 2011 to 2015, China’s internet finance industry has achieved a profound degree of growth in market penetration rate (from 1.6% up to 48%) and huge user volume of 330 million. Industrial communication data shows that the leading position in internet property insurance selling belongs to PICC (44%), Ping An (31%) and CPIC (6%). According to the “Market Report of Internet Personal Insurance on the First Half Year of 2016 ”, though there were 7 small and medium insurance companies among the 10 companies with the fastest growing, large and listed insurance companies enjoying overwhelming advantages with insurance cases. (Source: ccstock.cn )


 

WeiyangX LogoWeiyangX is the most influential website focusing on fintech in China. The site covers the latest news, industry data analysis, business practices, and in-depth fintech cases in fintech. WeiyangX is incubated by Fintech Lab.

Founded by Tsinghua University’s People’s Bank of China (PBC) School of Finance in 2012, the Fintech Lab is the first and leading research entity dedicated to leading best practices, promoting interdisciplinary innovation, and encouraging entrepreneurship in the field of fintech through scientific research and innovative project incubation.

Are Chinese Platforms Abandoning the Peer-to-Peer Model?

China P2P Wealth Management

Following in the footsteps of Chinese internet giants such as Alibaba, Tencent, and JD.com, leading Chinese P2P platforms have begun evolving into one-stop wealth management platforms.

Alibaba Corporate Offices ChinaAlibaba’s Ant Financial, Tencent’s WeBank, and JD.com’s JD Finance (for some background on these platforms, please refer to a blog post I published in August “If Netflix Started Offering Loans”) are all examples of online marketplaces for wealth management products such as money market funds, insurance annuities, mutual funds, P2P loans, and even private investment trusts or equity crowdfunding projects. As these companies have already amassed hundreds of millions of users through their respective ecommerce, payments, and social media products, it seems only natural for them to monetize this user base by selling financial products provided by third parties.

However, we have seen a couple of high profile P2P platforms in China, such as Lufax, Renrendai, and Jimubox, also shift toward this model to capture the additional value from their user base. Let’s take a look at how some platforms are approaching the wealth management marketplace model.Wuxian Yong Touna CEO

  • Touna is a marketplace lending platform founded in 2012 now with over RMB 12.2 billion in originations and just over 2 million registered users. Touna mainly offers secured loans with vehicles and properties as collateral. In June 2015, Touna launched a separate platform that offers higher-yielding investment products such as mutual funds, investment trusts, and even hedge funds. However, according to Chinese law, hedge funds and certain investment trusts are only open to qualified investors with a minimum commitment of RMB 1 million per fund and at least RMB 3 million invested in financial products or a 3-year average annual income of no less than RMB 500,000. Advertised returns for Touna’s fund products are as high as 70%. Of note, GF Securities, one of the first investment banks and brokerage firms in China, is an investor in Touna through its GF Xinde Investment Management subsidiary. Touna’s relationship with GF Securities may have been a major influence in the addition of equity fund sales to its product portfolio.

 

  • Tuandai DecisionTuandai is a marketplace lending platform founded in 2012 now with over RMB 10 billion in originations and also just over 2 million registered users. Tuandai offers a variety of loan products from unsecured loans to small businesses or secured loans with vehicles, real estate, stocks, or even trust investments as collateral. Recently, Tuandai diversified its investment product offering with the addition of two types of equity investments. One is a hybrid product where the underlying asset is an investment in a private trust that invests in public equity. Investors in this product are guaranteed a minimum 10% annual yield with additional upside based on the performance of the underlying asset. Touna’s other equity investment product is a crowdfunding platform for real estate developments called Fangbaobao, whose direct translation into “housebaby.com” might be considered a bit odd.

 

  • Hongling Capital Call CenterHongling Capital is one of the earlier lending platforms in China, which launched in 2009 and has only recently exploded in growth. Now touting nearly RMB 100 billion in total origination volume, Hongling Capital is often ranked first in monthly volume by data aggregators for the industry. However, Hongling only reports having about 790,000 users, which is significantly lower than other leading platforms that have generated far less volume. Hongling offers a wide range of loan products in both secured and unsecured categories offering yields of 7-10% to investors, though their homepage advertises returns of upwards of 15-18%. On the wealth management front, Hongling recently launched a “finance supermarket” offering 12 investment options that essentially covers a wide spectrum of wealth management products from low-yielding bank and insurance annuities to high-yielding private trusts.

 

  • JimuboxJimubox is a platform that launched in 2013 and has originated over RMB 11 billion in loans since inception. The platform is backed by well-known entities such as Ventech, a leading VC firm with investments in Europe’s and China’s digital economy space, and smartphone maker Xiaomi. Jimubox primarily works with third-party guarantee companies or micro-loan companies that refer offline borrowers to Jimubox so they may undergo the credit review and funding process online. Jimubox also recently started providing small unsecured loans directly to individuals of up to RMB 20,000 online. Jimubox launched a separate wealth management platform under the Jimufund (www.jimufund.com) brand, which sells a wide variety of fund products such as money market funds, debt type funds, and equity type funds offered and managed by over 30 of China’s leading asset management firms. Jimufund also offers Motif Investing type options where multiple funds are structured together under an investment theme.

 

  • I want to Borrow RenrendaiRenrendai is one of the more popular marketplace lending platforms. Founded in 2010, it has over 2 million registered users and has originated over RMB 12 billion in loans mainly through online channels. Recently Renrendai made headlines for spending USD 8 million on purchasing the domain name www.we.com. The “we” stands for “wealth evolution,” and Renrendai subsequently launched we.com as its wealth management website. Renrendai essentially restructured and split its website into two so its original renrendai.com domain now serves only borrowers and the new we.com domain serves only retail investors. In addition to purchasing Renrendai loans, customers can now also purchase a variety of fund products, similar to those offered by Jimufund, on the new we.com domain.

 

  • Lufax logoLufax, formerly a leading marketplace lending platform, was founded in late 2011 and was a first mover among lending platforms to transition to the one-stop wealth management model. Originally incubated by Pingan Insurance Group, Lufax quickly grew in the P2P lending space, originating loans through offline store locations as well as online channels. Leveraging Pingan’s brand power combined with relentless advertising, Lufax has amassed more than 16 million registered users and over 2 million actively investing users as of November 2015.

In March 2015, Pingan and Lufax announced that the P2P lending portion of Lufax would be restructured under the Pingan Inclusive Finance entity, leaving Lufax to become a pure asset exchange platform that no longer facilitates marketplace lending activities. Now Lufax offers hundreds of investment options including fixed income-type products, various types of equity and debt funds, and insurance annuity products.

In the first 3 quarters of 2015, transaction volume on Lufax totaled over RMB 900 billion with RMB 600 billion coming from institutional investors and RMB 300 billion from individual retail investors. It has been reported that P2P loans now make up less than 10% of Lufax’s transaction volume.

IPO in ChineseFurthermore, Lufax announced in August that they will allow other P2P platforms to sell loans on the Lufax platform, but it is unclear how many platforms they have interfaced with so far. Lufax is also exploring the possibility of sourcing international assets and investment opportunities with UBS and Morgan Stanley to package into domestic funds that can be sold to Chinese investors. The firm is preparing for an IPO either on a US or Hong Kong exchange in the near future.

As many of these leading platforms move to diversify their product offerings to attract retail investors, it raises the question of whether other platforms will follow suit and perhaps even abandon the marketplace lending model. The motivation behind each platform’s decision to offer investment products in addition to marketplace loans vary. Chinese media has suggested that it is becoming increasingly difficult for platforms to originate loans as market conditions have created an asset drought, driving platforms to explore other products they can offer to yield-hungry investors. I don’t quite buy this argument because I believe, in the slowing Chinese economy, there is an even greater need for capital from borrowers as alternative lending sources dry up. China does not lack in loan assets, China lacks platforms that are capable of lending to the multitude of China Yuan Renmibiunderserved borrowers and managing that risk effectively. Therefore the result is the same: platforms that are unable to generate origination volume must now collaborate with third-party asset managers to sell other investment products.

For some of the platforms outlined above, offering additional investment options in the one-stop wealth management model allows them to capture additional volume and value by leveraging their existing large active investor base. Introducing new wealth management products also induces growth in transaction volume in the near term as investors may try different investment options out of curiosity. As these alternative investments are managed by third parties, it’s quite cost effective for platforms to simply serve as the marketplace for these products and rake in additional revenues through sales. In addition, as yields on marketplace loans are trending downward, offering fund products that have higher advertised returns may prevent a user from taking their money elsewhere to explore better opportunities.

Ming Dynasty Tomb Gateway ChinaLastly, given the uncertain regulatory environment surrounding the online lending space in China, many platforms may be taking preemptive action in diversifying their businesses, in case restrictive policies negatively affect their lending operations. This is especially true for firms that are looking to go public in their next round of financing. In the case of Lufax, completely separating the lending business removes any major uncertainties, and the pure marketplace model will likely boost the company’s eventual public valuation. Since many of the earlier and larger lending platforms in China have completed their Series C rounds of financing, venture backers would likely push for platforms to dilute their emphasis on lending as they prepare for an IPO exit, hoping to circumvent the regulatory uncertainties and increase the probability of a successful IPO at a higher valuation.

I believe we will continue to see this trend of platforms transitioning to the wealth management marketplace model, especially amongst the top platforms that have large investor user bases where demand for investment products far outweighs supply of marketplace loans. These platforms have likely spent many marketing dollars on building their user bases, and it makes complete sense to capture this value by offering other investment products if they are unable to keep up with loan originations to meet demand. Selling investment products offered by licensed and well-known fund managers is the most cost-effective and scalable method to address these issues.

It will be unfortunate if it comes to pass that these platforms completely abandon the marketplace lending model in favor of these other products, instead of working harder to improve origination methods and continuing to facilitate loans to highly underserved borrowers in China.


 

 

Spencer Ang LiSpencer Ang Li has served as Fincera’s Vice President of Product since June 2015 and as Chief Executive Officer for Fincera’s multiple product development subsidiaries since March 2014. Prior to joining Fincera, Mr. Li was an Investment Banking Analyst at Cogent Partners in New York, a sell-side advisor for private equity secondary transactions, from 2011 to 2014. During his tenure at Cogent, Mr. Li conducted fund due diligence, managed marketing processes, and participated in the sale and transfer of nearly $2 billion in limited partnership interests on behalf of public pensions, large regional banks, asset managers, and other financial institutions. Mr. Li received a BS in Economics and BA in Psychology from Duke University in 2011.

In China, Baidu + Citic Bank To Launch New Online Bank

China Yuan Renmibi

China’s Internet search giant Baidu will partner with China Citic Bank, part of state-owned conglomerate Citic Group, to launch an online bank, according to the Financial Times.Citic Bank logo

The FT notes that Citic Bank,

suspended its shares in Shanghai and Hong Kong on Monday pending announcement of a “proposed external investment”. Baidu declined to comment on the report by 21st Century Business Herald, but said it would make an announcement on Wednesday.

Internet companies have drastically changed China’s financial sector in late years, with the greatest growth in the areas of mobile payments, wealth management and peer-to-peer lending. However, it’s worth noting that banks launched by Alibaba and Tencent have not met with the success anticipated.

tencent logoEarly this year, Tencent launched WeBank, the first online-only bank in the country, whose name was taken from the gaming and social media company’s popular WeChat instant messaging application. Alibaba’s financial affiliate, Ant Financial, followed suit months later, with the launch of MyBank. Note that China’s nine largest banks, which are all state-owned, favor lending to large, state-owned groups. However, as part of a pilot program to support privately owned banks, Tencent and Ant Financial received bank licenses from China’s banking regulator. Chinese premier Li Keqiang also was present at WeBank’s launch ceremony.

But a well-supported start doesn’t always guarantee a steady path to success. WeBank President Cao Tong resigned in September, vice-president Zheng Xinlin recently resigned (as recently confirmed by the bank), and the bank is playing down expectations of expansion.Li Keqiang

WeBank Chairman Gu Min last month said,

We don’t think of ourselves as running a traditional bank. WeBank is an internet platform through and through, but one with a banking license.

Of the Rmb4bn ($627m) in consumer loans that WeBank has granted, Rmb2bn are currently outstanding, according to the bank. MyBank granted Rmb3bn in loans to 180,000 small companies in four months, executives said at a news conference in October, but did not specify the outstanding amount.

webankChina Merchants Bank, China’s sixth-largest lender, this fall ended an arrangement that permitted its clients to open WeBank accounts. The FT noted that one “key issue for online lenders is whether they can accept deposits under Chinese banking rules that require customers to present identification in person at a bank branch in order to open an account.”

Back to Citic: Last month the company announced its plans to issue “virtual” credit cards in partnership with Alibaba and Tencent. The cards would allow users to pay by scanning QR codes, but the central bank stopped the company’s initiative within days. The FT writes that “Citic did not reply to requests for comment on Tuesday.”

China Central Bank Defends Online Payment Rules, Critics See Rules Stifling Industry Innovation

gabriel wildau“China’s central bank has moved to defend draft rules that would force online payment processors to channel large payments through traditional bank accounts, a requirement that industry observers say will stifle innovation while protecting the interests of incumbent banks,” reported FT’s Gabriel Wildau. “The People’s Bank of China in mid-July laid out a broad regulatory framework for internet finance, which includes payments, wealth management, peer-to-peer lending and crowdfunding, among other services… The rules set a cap on payments by third-party processors of Rmb5000 per client per day and Rmb200,000 per year. Larger payments must be routed through the payer’s account at a commercial bank.”

Flag_of_the_People's_Republic_of_ChinaAccording to the FT, the guidelines “sought to strike a balance between promoting innovation by upstarts seeking to compete with large, state-owned banks, while also imposing order on the chaotic world of internet finance, where hucksterism has thrived amid a lack of regulation.” Online payments are expected to hit Rmb11.8tn ($1.9tn) this year, up from Rmb8.1tn in 2014, according to iResearch.

The central bank issued a follow-up statement responding to  the payment cap criticism with specific rules governing online payments, a sector dominated by Alipay, an affiliate of e-commerce giant Alibaba, and Caifutong, the payment arm of social media and gaming group Tencent. Additional highlights from the FT include:

  • China Yuan RenmibiThe PBoC cited data showing that 71 per cent of online payment platform users made payments of less than Rmb1000 for all of 2014, to support its claim that most users will be unaffected by the cap.
  • Online payment companies can process payments of more than Rmb5000 but that the excess portion must be debited directly from a bank account linked to the user’s payment platform account, rather than from cash already stored on the platform.
  • Transfer limits are proposed based on a holistic consideration of payment efficiency and convenience, as well as factors such as anti-money laundering and client fund security.
  • Payment companies are forbidden from opening accounts on behalf of financial institutions, as well as financial intermediaries involved in peer-to-peer lending, crowdfunding, wealth management, or foreign exchange; these companies’ funds must be held at commercial banks.
  • Payment companies must verify a client’s identity in person before opening fully functional accounts. The issue of in-person account opening has also emerged as an obstacle for MYBank and WeBank, two online-only banks recently launched by Alibaba and Tencent, respectively.
  • The draft rules are open for public comment until August 28.