A keystroke by Chinese premier Li Keqiang marked the launch of China’s first online-only bank, reflecting the government’s hope that a new crop of privately owned lenders will expand access to finance for credit-starved smaller borrowers.
WeBank, a joint venture led by Chinese gaming and social network group Tencent Holdings, became the first private bank to start operations under a new pilot, after the banking regulator granted licenses to six such institutions last year. Its name comes from WeChat, Tencent’s wildly popular instant messaging and social networking app.
An affiliate of ecommerce heavyweight Alibaba has also been cleared to launch an internet-based bank in partnership with Fosun International.
“We will lower costs for and deliver practical benefits to small clients, while forcing traditional financial institutions to accelerate reforms,” Mr Li said at an opening ceremony in Shenzhen, according to the official Xinhua news agency. “It’s one small step for WeBank, one giant step for financial reform.”
Small, privately owned companies have long struggled to obtain loans from state-owned banks, which prefer lending to larger, state-owned groups. Economists say small and medium-sized companies provide about 60 per cent of China’s gross domestic product and about 75 per cent of new jobs.
Tencent and Alibaba plan to exploit a Big Data advantage, using troves of user data to evaluate credit risk of small borrowers. With the press of a button on Sunday, Mr Li sent dispatched a Rmb35,000 ($5,600) loan to a truck driver. Analysts expect most loans will be under Rmb1m.
A key challenge for WeBank and other internet lenders will be attracting deposits. WeBank will be China’s first online-only bank and will not have any physical branches, the main channel by which traditional banks draw in funds.
But Alibaba and Tencent have already proven their ability to attract funds into deposit-like money-market funds sold online and through their websites and mobile applications. Both have mobile payment services that enable users to store funds in their accounts.
China’s banking regulator recently loosened enforcement of the maximum 75 per cent loan-to-deposit ratio, allowing placements by non-bank financial institutions to count as deposits under the calculation. That will ease the burden of compliance for institutions with small retail deposit bases.
China also revealed a new deposit insurance scheme last year intended to insure all deposits under Rmb500,000. That should make it easier for upstart lenders to compete for funds with state-owned banks widely viewed as carrying a government guarantee.
The online-only format could streamline customer service in an industry where even simple transactions such as exchanging currency often involve lengthy bureaucracy.
Prior to the pilot programme approval of six privately owned bank, Minsheng Bank was China’s only privately owned commercial bank.