China’s two biggest online services already have large payments operations — and now both have permission to be bankers, too. On Monday (Sept. 29), Alibaba Group’s Alipay affiliate won permission from the China Banking Regulatory Commission to set up a privately owned bank, according to the Wall Street Journal. Alipay processes most of the transactions on Alibaba’s e-commerce websites.
Alibaba’s chief Chinese rival, Tencent Holdings, got similar approval to go into banking in July, when a group that includes Tencent got regulators’ permission to open Webank, which plans to provide banking services to individual consumers and small businesses. Webank is based in Shenzhen, just across the border from Hong Kong, and is already filling its management ranks with employees from traditional banks.
Alibaba said on Monday that Alipay’s bank will be headquartered in Hangzhou, about 100 miles from Shanghai, and will operate Internet banking services. The new bank still needs to get approvals from local banking regulators to start doing business, and won’t begin operation for another six months, Alibaba said.
Alibaba and Tencent compete fiercely both online and off. While Alibaba handles the largest share of e-commerce transactions in China, Tencent is the leader in messaging and online games. Both companies have also poured money into Uber-like taxi-hailing services and other offline efforts.
In Alibaba’s case, Alipay already offers small-business loans, as well as money-market accounts that are attractive to consumers because they deliver higher interest rates than regular bank savings accounts. Starting in September, Alipay added the ability to transfer money automatically between regular bank accounts and the money-market accounts so that, for example, customers could automatically deposit a portion of a monthly salary or automatically pay monthly bills.
Tencent launched its own money-market fund in January as part of its WeChat smartphone messaging service, which comes with its own electronic payment feature.
Banking approvals for the two Chinese online giants represent a marked contrast to financial-services efforts by U.S. online services and offline retailers, where competition is arguably even fiercer. For example, Apple had to cut deals with large banks who issue credit and debit cards in order to launch its new Apple Pay payments service Previous mobile-wallet efforts like those from Google and Softcard struggled without successfully doing the same kind of deals.
Even Walmart has had to partner with banks such as American Express and Green Dot in order to provide banking services. The world’s largest retailer said last month that it will offer mobile-phone-based checking accounts with no overdraft fees through GoBank, a banking service from Green Dot. Walmart is also spearheading the CurrentC mobile-payments service, which is designed to cut traditional payment-card costs to retailers by making payments directly from a customer’s checking account.
Walmart has been specifically targeted by traditional bankers to block it from getting Federal Reserve approval to operate a bank on its own. In 2012, a group of 12 bankers who advise the Federal Reserve Board said in a meeting that they wanted the Fed to limit payments to “regulated banking institutions” — but also acknowledged that they they have successfully blocked Walmart from becoming one of those regulated banks for more than a decade. Those comments, which were intended to be confidential, were only made public months later by Bloomberg News after a Freedom of Information Act request.