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UPDATED: July 18, 2015 NO. 3 JANUARY 15, 2015
A Small Bank Makes a Big Difference
Tencent-backed private lender ready for debut notwithstanding challenges ahead
By Zhou Xiaoyan

QQ, an online messaging software developed by Tencent, has over 800 million users, whereas WeChat, a chatting app for mobile phones, boasts over 500 million users.

Wu Qing, a financial researcher at the Development Research Center of the State Council, said he has great expectations for the role of private banks.

Wu said that compared with the huge market shares held by traditional banks, private banks will not be big enough to reshape the industry. "But innovation and the Internet 'gene' in some of these private banks could bring huge changes to the system in terms of pushing the traditional banks to stay ahead of the competition," he said.

For instance, Yu'ebao, an online product for money management by China's e-commerce giant Alibaba Group, is so popular that it has pushed brick-and-mortar banks to launch more online services, he stated.

"With the competition from Internet finance, traditional banks have been aware that they need to respond and act as fast as they can to stay afloat," he said.


WeBank is described by Premier Li as "a pioneer private bank." Guo Tianyong, Director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics in Beijing, said that the pioneer doesn't always have a happy ending.

Du also predicted that WeBank will encounter many obstacles going forward. "The regulations for private banks, which now solicit public opinion, are quite conservative. They have stringent requirements in terms of capital adequacy ratio and bad loan ratio. It can be expected that WeChat will face many restraints in product and service innovations," Du said.

"Therefore, the government should provide a better environment to support its development, say, loosening certain financial supervision policies for it to encourage more innovations," Guo said.

"More importantly, the leadership should change its management mindset. People shouldn't discriminate against any foreign-funded and private-funded banks. They should be treated equally to state-owned ones," Guo said.

"With a flexible system and more advanced management levels, private banks can never lose to traditional state-owned ones if the government has created a level playing field," Guo said.

Tencent is also facing upcoming competition with Alibaba Group, which is also preparing for a private bank in Wenzhou, east China's Zhejiang Province, and Alibaba has a sharp edge because it has obtained massive e-commerce transaction data, which could significantly back up its credit management.

"Whether Tencent's WeChat can become a key force in pushing forward the development of WeBank remains to be seen. Most people use WeChat for socializing with others, whereas people don't often use it for consumption or payment. That is a major obstacle for the development of Internet finance in Tencent," said Zhang Jun, CEO of Ppdai.com, a leading peer-to-peer (P2P) lending website.

"Only with enough consumption activities based on WeChat can Tencent have the payment and transaction records of users and then use the information to more accurately access their credit. In this regard, Alibaba has done more and is taking the lead," said Zhang.

Even so, Zhang said he is still quite optimistic that Tencent can catch up.

"WeChat offers a strong social connection to users. As long as user experience is good and more off-line transaction spots are created, users are very much likely to switch to WeChat online payment."

"I use WeChat every day, but I don't use Alipay (a third-party payment service by Alibaba and a Chinese equivalent of the Paypal) every day," Zhang said. "WeChat has a very high user engagement, which makes it much easier to promote products offered by WeBank."

Email us at:  zhouxiaoyan@bjreview.com

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