China will expand a trial programme in 2015 to allow the creation of purely private banks and ease the entry of private capital into the banking sector, according to the CBRC on December 24, 2014
“I think China will be one of the leaders in online-only banking,” says Chris Powers, senior associate at Shanghai-based financial services consultancy, Z-Ben Advisors. “You have a whole generation of Chinese consumers demanding these services now. And in China they can move very quickly on things like this.”
The new lender is one of a handful of new private ventures given the nod by the China Banking Regulatory Commission (CBRC) last year. Each has been given a six-month deadline from approval to launch, and while WeBank is first out of the gates, it could soon be followed by Huangzhou-based MyBank, which was approved last September. Alibaba chairman Jack Ma holds a minority stake in MyBank, setting an intriguing scene for a head-to-head between China’s two internet giants for dominance in China’s online-only banking market.
In an indication of the significance placed on the emergence of a private-banking sector in China, Chinese premier Li Keqiang launched WeBank on January 4. It has a registered capital of Rmb3 billion ($480 million) at launch and is now in a trial period, during which it will help shareholders and employees to open bank accounts and provide loans to a select group of customers. The trial period is expected to take at least four months, according to people familiar with the situation.
Tencent owns 30% of WeBank. The other two largest shareholders are Shenzhen Baiyeyuan, an investment holding company specializing in the pharmaceutical industry, and Shenzhen Liye Group, which focuses on financial and industrial investments. Both hold 20% equity interests.
The management team includes David Ku as chairman and CEO, previously of China Ping An Insurance Group, and general manager Cao Tong, formerly deputy general manager of Exim Bank of China and Citic Bank.
Despite progress in the sector, the structure of some of these new ventures is still not entirely clear.
“Everyone is still wrapping their heads around what an online-only bank means in China,” says Powers.
Victor Wang, China banking analyst at Credit Suisse, expects that in the first half of 2015, there will be two or three online-only banks open for business in China.
“It will take a while for them to be a threat to large, established banks in the credit business,” says Wang. “But they can become very competitive very quickly in some of these businesses, like remittance and payments.”
Wang believes that China wants to bring in more competition and diversify the background of companies in the banking industry.
“You need to think why China wants this to happen,” he adds. “I think it’s because China’s current banking system has been protected for a long time, and the large state-run banks are not really incentivized to innovate.”
WeBank and MyBank, which in addition to Jack Ma’s involvement is part-owned by a subsidiary of Fosun International, may soon be joined in the expanded Chinese private banking sphere by several other new competitors that the CBRC approved last year.
These include Wenzhou Civil and Commercial Bank, which was started by Chint Group and Huafeng Group. Tianjin Jincheng Bank in Tianjin Municipality will also join the field, a venture backed by Huabei Group and Maigou Group.
Shanghai Huarui Bank, backed by Shanghai JuneYao Group and Metersbonwe Fashion & Accessories has also obtained approval. China Minsheng Bank was previously the only private bank in China.
“Online-only banking is the third front in a larger online finance battlefield in China,” adds Z-Ben’s Powers. “The first front is financial products being distributed online, such as peer-to-peer lending. A company in this sector would be Jimubox. The second front is online money market funds like Yu’e Bao. These are mostly distribution platforms that allow investors to access money market funds.”
Paul Haswell, partner at law firm Pinsent Masons, tells Euromoney that online-only banks should be subject to exactly the same regulations as other banks.
“They are not any freer, the only difference is they don’t have physical branches,” he says. “If it’s successful, it will be interesting to see if WeBank would consider a launch in other countries. Chinese banks are rarely interested in international customers, but it would be quite an opportunity if it were to try and expand beyond China.”
China’s experimentation with online-only banking will be watched closely by many people across the industry. The game-changing potential of jettisoning physical branches could revolutionise the banking industry in both China and elsewhere if it takes off successfully.