Next Battleground for Alibaba, Tencent: Financial Services
- The website for Yu’E Bao, an online financial product offered through Alibaba Group Holding’s online payment affiliate Alipay.
- Bloomberg News
As Alibaba Group Holding and Tencent Holdings compete fiercely in virtually all areas of online services from entertainment to shopping, the next big battlefield for the two Chinese Internet giants appears to be banking.
Now that both Alibaba’s financial affiliate and Tencent have won approvals from Chinese authorities to set up privately owned banks, the companies, which already offer electronic payment and some financial services, are likely to get more deeply involved in the financial lives of Chinese consumers.
The China Banking Regulatory Commission said Monday that it gave approval to the Alibaba affiliate, the parent company of the Alipay electronic payment unit that processes most of the transactions on Alibaba’s e-commerce websites.
Alibaba, which went public in the U.S. earlier this month in a record-breaking $25 billion initial public offering, said on its website Monday that its financial affiliate plans to establish a bank headquartered in Hangzhou to operate Internet banking services. It will take six months for the new bank to begin operation, and it still needs to gain approvals from local banking regulators to start the business, Alibaba said.
In July, a group that includes Tencent won permission from Chinese regulators to open Webank, which would serve individual consumers and small businesses.
Banking is a key component of the Internet firms’ efforts to build online services platforms that cover every aspect of consumers’ lives. How far they can go with financial services still depends in part on Chinese regulators. But potential markets for Alibaba and Tencent are huge as hundreds of millions of Chinese consumers already use their e-commerce and social networking services.
Alibaba, which runs popular online shopping sites Taobao and Tmall, have been expanding its services to offer entertainment and social networks. Behind all of those offerings, Alipay plays a key role by handling any payments involved in the services. The Alibaba affiliate’s money-market fund investment service called Yu’e Bao, or “leftover treasure” in Chinese, has ballooned in size since it was launched last year. People who had already been using Alipay for all kinds of payments were attracted to Yu’e Bao’s high interest rates compared to regular bank savings accounts.
Alibaba said on its website last week that Yu’e Bao has added a new feature that allows investors to automatically transfer money between their bank accounts and Yu’e Bao accounts. Users can, for example, arrange for their Yu’e Bao accounts to automatically receive a portion of monthly salary deposits or automatically pay monthly bills.
Tencent, meanwhile, has also been trying to promote its electronic payment system as well as other financial services. In January, Tencent launched Licaitong, an online money-market fund product similar to Yu’e Bao. Tencent is offering the financial services through its WeChat smartphone messaging application, which has about 440 million users and comes with the company’s own electronic payment feature.
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