MYbank set to be a mighty disruptive influence
- Alibaba has launched MYbank, an internet banking platform
- The move its latest effort to expand into the financial industry
- It will also help it compete with its largest rival, Tencent
This is the latest stage of Alibaba’s expansion into the financial industry, to not only capitalise on the lack of competition from the stagnant state-owned banks, but to also compete with its largest rival Tencent, which has been actively developing its own financial business through its WeChat app and online shopping subsidiary JD.com.
In a bid to increase lending to individuals, the Chinese government approved the launch of several new private banks, including Alibaba’s MYbank and Tencent’s WeBank. The problem in China is that the big four state-owned banks: Bank of China, Industrial & Commercial Bank of China, China Construction Bank, and Agricultural Bank of China, very rarely lend to individuals and SMEs. They typically only lend to large private firms or state enterprises, which are in least need of bank loans.
lend to individuals and SMEs. Source: Capital Economics
Likewise, the loan system for individuals is just as difficult, with the only viable option being spending on credit cards. But this is limited by each credit card company, and as with the West, it’s more and more difficult to amass large credit debt across different cards.
Tech giants disrupt the financial industry
Tencent and Alibaba have revolutionised China’s financial industry over the past few years. They have launched the WeChat Pay and Alipay mobile payment apps respectively, and these are the default methods of payment online. But as both firms expand their mobile ecosystems, offline payments are embracing this technology.
Both firms have launched their own wealth management fund distribution platforms, with Alibaba’s Yu’e Bao (余额宝) platform growing rapidly since its launch. Typically in China, you would go to a bank branch to invest in a wealth management product, but the quality of the fund and the quality of the service are poor. This has been the case for years, and hasn’t changed because banks have had no rivals in the industry. However, Yu’e Bao is much more simple and transparent, with everything being conducted through the user’s Alipay account.
Through its 40% stake in online retailer JD.com, Tencent allows users to make online purchases using interest-free credit, and Alibaba allows the same on its Taobao and Tmall shopping platforms. Through this feature, both firms are essentially acting as credit card operators for their users, where the money can only be spent on their platforms.
The launch of MYbank will further disrupt China’s financial industry. Individuals and SMEs will have very little need to use the shadow banking system, and will make bank lending much more transparent. All loan transactions are conducted through Alipay, and because this mobile platform has been in operation for over 10 years, almost every user has built a large dataset of purchase history and behaviour, meaning Alibaba can calculate the most comprehensive credit scores in China.